Dark Horse moves to Middle Earth as Embracer Group reorganizes

Dark Horse’s parent company, Embracer Group, announced it is splitting into three companies to enable “each entity to better focus on their respective core strategies and offer more differentiated and distinct equity stories for existing and new shareholders.”

The Sweden-based company will shift to three separate entities:

• Asmodee, a global leading tabletop games publisher and distributor with an extensive studio network and IP catalogue.
  • Net Sales of SEK 14.8 billion and Adjusted EBIT of SEK 1.9 billion on a pro forma basis as per LTM[2] December 2023
• “Coffee Stain & Friends”, a diverse gaming entity with a dual focus on indie and A/AA premium and free-to-play games for PC/console and mobile, with a high degree of recurring revenues.
  • Net Sales of SEK 10.9 billion, Adjusted EBIT of SEK 2.8 billion on a pro forma basis as per LTM December 2023.
• “Middle-earth Enterprises & Friends”, a creative powerhouse in AAA game development and publishing for PC and console, as well as the stewards of The Lord of the Rings and Tomb Raider intellectual properties, among many others.
  • Net Sales SEK of 14.1 billion, Adjusted EBIT SEK 2.0 billion on a pro forma basis as per LTM December 2023.

Dark Horse will be part of the Middle Earth Enterprises and Friends group, along with gaming studios Crystal Dynamics, Dambuster Studios, Eidos-Montréal, Flying Wild Hog Studios, Tripwire, Vertigo Games, Warhorse Studios and 4A Games, PLAION and developer Freemode. Along the IP in the group Dead Island, Killing Floor, Kingdom Come Deliverance, The Lord of the Rings, Metro and Tomb Raider.

Phil Rogers, currently interim Group Chief Strategy Officer and CEO of Crystal Dynamics – Eidos will lead the new Middle Earth group, starting April 22, 2024.

Dark Horse was acquired by Embracer Group in 2022, as part of Embracer’s then high flying spending spree on gaming studios and IP. Purchases included multiple gaming studios and Middle Earth Enterprises, which owns the rights to develop Lord of the Rings based IP in games, film and more, which was acquired for for an estimated $385 million in 2022.  Other acquisitions included Perfect World Entertainment, including Cryptic Studios, Crystal Dynamics, Eidos-Montréal, and Square Enix Montreal, Limited Run Games, and Singtrix among many others.

All this spending came to a crashing halt in 2023 when a planned $2 billion investment from the Saudi-backed Savvy Group failed to materialize. Since then Embracer has been shedding companies and employees, laying off more than 1000 employees by last November and cancelling projects at numerous studios. Most recently, just a few weeks ago they sold GearBox to Take-Two for $460 million. 

Dark Horse has been publicly unaffected by all the turmoil, although they have been quietly cancelling projects since last summer. Just why they were targeted by Embracer to begin with is seemingly because of their high profile gaming publishing program, including Zelda and more. In 2021, before Embracer started unravelling, they established a new gaming division, Dark Horse Games.

When Dark Horse was originally bought by Embracer it seemed like a good deal – Embracer was known to be fairly hands off while allowing individual companies to grow at their own pace. A lot has changed since then, and where Dark Horse will land in this new structure is unclear. In their statement Embracer writes:

The entities will have sufficient scale, coupled with clearer operational strategies and financial profiles that enable simplified equity stories to attract a larger pool of investors. Current shareholders can freely decide on their capital allocation between the three entities.

Each entity will be able to fully utilize its own balance sheet, its own set of financial targets and optimal financing structure and capital allocation strategy that enable their growth ambitions.

The new structure enables the best possible greenlighting models, portfolios and go-to-market strategies for indie games as well as AAA games through two separate, more focused entities.

Ongoing and future collaboration around IPs, companies and people will still be enabled and encouraged across the entities on market terms.

Embracer CEO Lars Wingefors released an open letter on the reorganization:

Everyone,

My journey started more than 30 years ago trading comic books to collectors and I have always dreamt to build something meaningful and significant. For me, building a business is not about reaching a certain size or position, it is about the journey to turn many small and sometimes a few large steps into something greater. Today is clearly a day when we take a bigger step. I am so excited to imagine what the coming decades will bring. At the IPO in 2016 I made a promise to stakeholders that I would be around for at least 25 years – and I still have 17 years left to fulfill that.

It has not always been a straight road, but I am very proud of the achievements made possible by thousands of talented individuals who create exceptional content entertaining millions of people worldwide. We have some of the most extraordinary companies and IPs in the games and entertainment industry within Embracer today, and it is my duty to ensure the best possible conditions for continued success.

I am convinced that the best is still ahead of us.

History has shown that diversified groups like ours can significantly enhance their chances of success by adopting a more agile, fast-moving approach and focusing on well-defined core market segments.

Numerous inspiring examples from Sweden illustrate how large enterprises have achieved greater success by dividing into multiple separate specialized companies. I am deeply motivated and inspired by these success stories and believe they offer valuable insights for our own strategic direction. The time is right for Embracer to become three public companies, each boasting sufficient scale, coherent strategies, specialized business models and empowered by visionary leadership teams. Rather than imposing conformity on thriving businesses, we should foster an environment that amplifies existing success. I am confident that this will be easier with three distinct winning formulas in specific market segments.

Asmodee is the leading developer, publisher, and distributor of tabletop games on the planet. “Coffee Stain & Friends” will become the leading and most innovative developer of community-driven games for PC/Console and Mobile. “Middle-earth Enterprises & Friends” will be developing immersive world-class entertainment IPs, including the iconic Lord of the Rings, leveraging in-house AAA capabilities and formidable partnerships.

I have always viewed my role as a Group CEO and main owner to be a promotor for successful entrepreneurs, gamemakers and business leaders in achieving more success.

This will not change.

I today also communicate my intention to form a new long-term ownership structure. This will include the current holdings in Embracer (representing approximatly 20% of the capital and 40% of the votes). I intend to remain a long-term, active, committed and supportive owner of all three entities. This structure will be based on the values and ideas that Embracer was founded upon, trust, a long-term mindset, and a desire to embrace different perspectives going forward.

There is not one way to do business, but some business models are more similar than others. The same goes for businesspeople. The ambitions may be similar, but the approach differs. The similarities between the businesses that will make up Asmodee, “Coffee Stain & Friends” and “Middle-earth Enterprises & Friends” are striking, but so are also the differences when it comes to go-to-market strategies and business profiles. All the companies have bright futures ahead, by perfecting what is working for each of them, and by continuing to cooperate when it makes sense.

There is significant untapped potential within the group, which I am confident the new structure will unleash. This will empower each individual and each team to grow and excel further in their careers as well as provide them with their own leadership and strategic direction.

This is the start of a new chapter, a chapter that I intend to remain part of as an active, committed, and supportive shareholder of all three new entities, with an evergreen horizon. Moving towards three independent companies reinforces Embracer’s vision of backing entrepreneurs and creators with a long-term mindset, allowing them to continue to deliver unforgettable experiences and entertainment across the globe.

I would especially like to thank all employees standing with us in the past challenges. Today marks the first day of the new journey, lets join it together and create the future.

This is the start of a new chapter.

Yours sincerely,

Lars Wingefors