Rockpool nets 12.7x on sale of Outright Games to EMK

Outright founder Terry Malham will reinvest alongside EMK to retain a "substantial" stake, EMK stated.

The exit will generate returns of 12.7x, Rockpool said in a statement.

The firm took a majority stake in Outright in 2016, providing growth capital to the founding team. Since then, the business has grown organically, with offices in Los Angeles, London and Madrid, and a distribution network covering 25 countries, the vendor stated.

Playing video games became a go-to entertainment form for millions in the pandemic, boosting revenues of gaming companies and proving the segment to be a good bet for VC and PE backers, as recently explored by Unquote.

Investor appetite for gaming companies has returned, following a lull in deal-doing between 2015 and 2018. Beyond the traditional VC backing for startups, the interest in gaming companies has been strong at the later stage as well, with a rush to consolidate a market made up of numerous small gaming studios – often presenting attractive exit routes for early VC or even PE backers. According to market research firm DDM, there were 220 M&A deals in the gaming industry globally last year, which is a 33% year-on-year increase. Notable deals in 2020 and this year include Microsoft's acquisition of US-based gaming studio ZeniMax Media from Providence Equity Partners for USD 7.5bn in cash; Swedish gaming studio Embracer Group's acquisitions of Easybrain, Gearbox and Aspyr Media; and EA's USD 2.1bn acquisition of listed mobile gaming company Glu Mobile.

As evidenced by the sale of Tonic Games to Epic in early March, backing the right developer can certainly reward growth-focused PE firms with venture-like returns: backer Synova netted a 9x money multiple and 200% IRR after just two years of backing Tonic. The GP had bought the studio from Frog Capital (which itself netted a 7.4x return) shortly before it developed and released family-friendly battle royale game Fall Guys: Ultimate Knockout, which went on to achieve breakaway success.

Other success stories include Team17, most famous for developing the Worms series of games. LDC backed the business in 2016 and sold half of its 33% stake when it listed on the AIM segment of the London stock exchange with a market cap of GBP 217m in 2018. Since then, LDC has sold several chunks of shares – including 4.6% for GBP 19.2m in 2019 and a further 5.2% for GBP 39.4m last year. Shares were priced at 165 pence at the time of the IPO; they now trade at 790 pence apiece.

Company
Founded in 2016, Outright Games is a video games publisher focusing on family-friendly interactive entertainment featuring popular franchises, including Paw Patrol, Jumanji, PJ Masks and Peppa Pig. The company claims it has sold 18 million units since inception and has secured a pipeline of intellectual property for launch over the coming years.

According to public documents, Outright generated a GBP 28.1m turnover for gross profit of GBP 4.1m in the year to March 2020.

People
Rockpool Investments – Ben Hutchinson (investment manager).

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• EMK Capital Partners