Keywords Studios plc Acquires Red Hot CG

Posted: 22nd May 2017 08:02

Keywords Studios, the international technical services provider to the global video games industry, today announces the acquisition of 100% of Strongbox Ltd, a holding company with subsidiaries in China and Indonesia trading under the Red Hot CG ("Red Hot") brand. Red Hot are specialists in the production of graphical art assets for video games.

The acquisition of Red Hot is in line with Keywords' strategy of growing both organically and by acquisition. It will increase the capacity of Keywords' fast growing and higher margin Art Service Line, as well as bringing a number of attractive new clients to the art business at Keywords.

Founded in 2010 by Daniel Staton, Red Hot's operating hub is in Shanghai with satellite studios in the lower cost locations of Chengdu, Dalian and Zhengzhou in China plus Yogyakarta in Indonesia. This hub and spoke model gives the company the advantage of broader access to the Chinese pool of video game art talent, which is the largest in the world, while maintaining control and providing international business access through Shanghai.  It has 220 artists which, when added to Keywords existing 900 artist employees and contractors, will increase the Group's art production capacity by approximately 25%.

Red Hot has a strong client base, including many of the game development studios of Activision as well as Sony, Bethesda, Tencent and Capcom, which will complement Keywords' existing Art Service Line client base.

Daniel Staton (CEO), Leo Ling (COO), Claas Grimm (CRO) and the rest of the management team will remain with Red Hot, bringing many years of video game industry experience and art production expertise to the Art Service Line.  They will continue to run Red Hot whilst working closely with the other Art studios in the Group to bring additional services and production capacity to their existing and prospective clients.

Under the terms of the acquisition, which is expected to be earnings enhancing in the current year, Keywords is paying a total consideration of $6.0 million for 100% of Red Hot. This is being satisfied by $4.35m in cash, $1.0m of which is deferred until the third anniversary of acquisition, funded from the Group's existing resources. The remainder is being satisfied by the issue of 160,842 new ordinary shares in Keywords, which will be issued to the Sellers on the second anniversary of the acquisition.

In the year ended 31 December 2016, the Red Hot businesses generated revenues of $5.4m and underlying pre-tax profit of $0.9m. Good further growth is expected in 2017.

Andrew Day, Chief Executive of Keywords, commented:

"The acquisition of Red Hot further strengthens our fast growing, higher margin art services business, enhancing our unique client proposition which combines operations close to our clients, in the US and Canada, with those in lower cost locations across Asia. Following the acquisition, we believe the Keywords Art Service Line is the leading player in the outsourced market in terms of capacity and breadth of service. We warmly welcome Red Hot's highly talented teams to the growing Keywords family and we look forward to continuing to build upon its excellent reputation and loyal client base as part of the Group."

Daniel Staton, CEO of Red Hot Studios commented:

"We are delighted to be joining the Keywords Group as we continue to grow our business.  We believe that combining forces with Keywords' Mindwalk studio in China as well as leveraging the overall resources of the wider Keywords Group will enable us to accelerate our development and provide wider opportunities to all members of the Red Hot team."

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