Square Enix sells Tomb Raider, studios for $300 million
Japanese gaming giant Square Enix is largely getting out of Western game development, selling three big studios and several top franchises to the Embracer Group.
Driving the news: Tomb Raider lead development studio Crystal Dynamics, Eidos-Montréal and Square Enix Montréal will become part of Embracer Group, the Swedish holding company that is rapidly constructing an empire, as part of a $300 million cash deal, according to an announcement this morning.
- The studios employ more than 900 developers and are largely based in San Mateo, California, Bellevue, Washington, and Montreal, Quebec.
- Embracer is also acquiring intellectual property for Tomb Raider, Thief, Deus Ex and other franchises.
- Square Enix said the deal would help accelerate the company’s growth and “enables the launch of new businesses by moving forward with investments in fields including blockchain, AI and the cloud.”
Between the lines: Square Enix is best known for its Japanese-born mega-hits in the Final Fantasy franchise, and its management hasn’t held back from saying its Western-made games have underperformed.
- Crystal Dynamics’ most recent game, Marvel’s Avengers, was a poorly reviewed boondoggle that analyst David Gibson estimates resulted in losses of $200 million.
- Eidos-Montréal’s Guardians of the Galaxy, released last fall to wide acclaim, “undershot” Square’s expectations.
- Square Enix said today that the three studios generated nearly $200 million in revenue in 2021, but less than $8 million combined operating income.
The $300 million deal price is nevertheless shockingly small by industry standards. Tomb Raider alone is a top-tier gaming franchise, and games from the acquired studios sell millions of copies.
- “I think in a different timing and circumstances, that could have been a different number,” Embracer CEO Lars Wingefors said today during a presentation about the deal.
- Embracer, which acquired 22 gaming companies last year, according to Drake Star, spent $1.3 billion in 2021 on Texas-based Borderlands studio Gearbox alone.
- Embracer also noted it expected increased revenue if it makes a deal with Xbox or PlayStation around any of the acquired studios’ upcoming games.
The big picture: Unlike many other gaming mega-deals of late, this one is as much about divestment as it is acquisition.
- Square gets smaller, letting it focus on Japanese-borne mega-hits such as the online Final Fantasy XIV, while chasing new trends like blockchain and cloud.
- Embracer goes bigger with a holding company model that entrusts management to a growing constellation of developer and publishing groups — and seems to be placing a bet on big-budget AAA single-player games.
What’s next: The deal is expected to close between July and September, Embracer says.
- The company expects big releases from the acquired studios to start rolling out no sooner than two years from now. That includes a new Tomb Raider from Crystal Dynamics.
- Crystal Dynamics is also partnering with Microsoft on the company’s new Perfect Dark game, an arrangement that Microsoft says will continue.
- Square Enix Montréal, which will presumably be renamed, will release new free-to-play mobile games this year.
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