Embracer’s three-way split is the financially mature thing to do. Quick thoughts. 👇

ICYMI, Last year I predicted Embracer's inevitable decline:

It announced today that it is going to split into three separate publicly-listed game companies: Asmodee Group, Coffee Stain & Friends, and Middle-earth Enterprises & Friends.

Clearly, the Swedish gaming conglomerate was struggling in its form as a federation of different projects and properties. It means is that every studio has to help pay the debt the mothership has accumulated by making so many acquisitions. That’s unsustainable. It’s a distraction from the creative process and destroys capital assets like talent and goodwill. 

The three parts will be worth more than a single Embracer. It had previously acquired Asmodee for $3 billion, and the tabletop and boardgame category has continued to perform well. By divesting the different components into publicly traded companies, it will free high-performing divisions from carrying the debt Embracer accrued during the boom of 2020.

It also makes the new Middle-earth Enterprises & Friends division a ripe acquisition target given the strength of its IP portfolio. Embracer has been trying to sell off several of its divisions of the past 18 months, but outside of a few sales like the $460 million sale fo Gearbox to Take-Two Interactive, it was unable to find any buyers. Following a disappointing yard sale, it is now splitting the company to alleviate the debt load and restructure its financing.

The recent sale of Gearbox was a steal for Take-Two. Embracer’s need for cash forced it to sell assets at much lower valuations. It originally put together a deal package totaling $1.3 billion for Gearbox. In the run-up to the sale, Embracer apparently also already performed the bloodletting, laying off a third of Gearbox's studio in the Netherlands, for instance. Take-Two saw a good deal and moved on it.

Maybe we can get back to making games again.