Sumo Group plc (LON: SUMO), the award-winning provider of creative and development services to the video games and entertainment industries, has announced that yesterday the Group completed the acquisition of Red Kite Games Limited, a work-for-hire studio focusing on engineering and code support services, for a total consideration of circa £2.0 million. The net consideration is circa £1.5 million, as Red Kite has been acquired with circa £0.5 million of cash on the balance sheet.
The acquisition supports the Group’s growth strategy through increased capacity and access to a new talent pool in West Yorkshire.
Background
Red Kite is well known to the Group: Sumo Digital has worked successfully with Red Kite for several years, collaborating on a range of titles. Sumo Digital has in the last 12 months accounted for around 40% of Red Kite’s sales with the other 60% coming from projects that are not publicly disclosed.
Established by ex-Rockstar Games developer Simon Iwaniszak in 2012, Red Kite is primarily a work-for-hire studio, providing game development services and code solutions to the video games industry. The business operates from a single studio in Huddersfield, West Yorkshire, employing 27 people. Its talented and highly experienced development team works with some of the industry’s best-known publishers and developers, most recently Codemasters on DiRT 4, Sony Computer Entertainment (SCE) on God of War III: Remastered and Activision on Call of Duty: Strike Team.
The share capital of Red Kite was owned by certain of its Directors and employees, including the company’s founder Simon Iwaniszak.
Integration
Simon Iwaniszak, David Roberts and Andrew Greensmith, three of Red Kite’s former shareholders, have entered into new service agreements and will be issued with options over Sumo Group shares under the Company’s Long-Term Incentive Plan.
The business will continue to operate under the Red Kite name, as a wholly owned subsidiary of Sumo Digital.
Financials
In the year ended 31 January 2018, Red Kite reported EBITDA of £0.4m on revenue of £0.9m. These figures are unaudited. Both revenue and profit are expected to be lower in the year to 31 January 2019, due to the application of resource on an own-IP project.
Red Kite is expected to contribute circa £0.2m to Sumo Group EBITDA in the 11 months to 31 December 2019.
Consideration and issue of equity
Under the terms of the acquisition, Sumo Group has paid an amount in cash equal to the cash held by Red Kite at completion (circa £0.5m) and will issue 1,162,791 new ordinary shares in Sumo Group on the first anniversary of completion (the “Consideration Shares”) to the sellers with a value of £1.5m, calculated using the average closing share price for the three business days prior to completion of 129 pence.
The sellers have agreed that, for the period of 12 months from issue of the Consideration Shares, any sale will be subject to the approval of Sumo Group’s brokers in order to maintain an orderly market.
Carl Cavers, Chief Executive Officer of Sumo Group plc, said:
“Red Kite is an established brand with talented people, providing engineering and code support services to some of the biggest names in the industry. Simon and his team are already well known to us and we are confident that Red Kite will integrate quickly and successfully. On behalf of the whole Group, I extend a warm welcome.”
Simon Iwaniszak, Studio Director of Red Kite, added:
“We are very much looking forward to being part of Sumo Group. Sumo Digital is such an exciting business, working on incredible projects. Being part of a creative, ambitious and supportive Group, which is delivering great results, will present new opportunities and new challenges to Red Kite. We have exciting plans for the studio and believe that Sumo Group will help us to achieve our full potential.”
