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Take-Two acquires Gearbox as cross entertainment synergies ramp up

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by Karol Severin

We have barely made it to the end of the first calendar quarter of 2024 and MIDiA’s prediction about a $100 million+ acquisition in the games industry has panned out. Take-Two Interactive (Take-Two) is acquiring The Gearbox Entertainment Company from Embracer for $460 million, paid with common stock.

Gearbox is famous for title such as Borderlands, Brothers in Arms, Duke Nukem, Tiny Tina Wonderlands, and others.

This strategic move makes sense. Take-Two already had a publishing deal with Borderlands, and owning it will further enhance the financial profile of its publishing involvement. More importantly, the deal gives Take-Two control of Gearbox’s IP, an important pillar of its business given its cross-entertainment roadmap and potential. Take-Two will also benefit from adding a pool of highly skilled and experienced developers into its portfolio.

For Gearbox, this acquisition will provide the financial backing required  for it to fully realise its future development and cross-entertainment potential. That is something Embracer may have found more difficult to facilitate smoothly these days - especially since it ran into financial difficulties after a $2 billion funding deal was scrapped in its late stages. After this, Embracer embarked on a restructuring journey, selling off and shutting down parts of its business as well as laying off staff.

For context, Embracer acquired Gearbox in 2021 for $363 million ($175 million in shares and the rest in cash) with an additional earnout potential of $1 billion if targets were met within six years. It has only been three years and the numbers are not public, so it is difficult to say how lucrative this deal ended up being for Embracer. Further, it is important to note that Take-Two’s acquisition does not include all of Gearbox’s assets. As the press release states: The transaction excludes certain third-party publishing and other assets that Take-Two deemed non-core to its business”. The entire consideration is paid in newly issued Take-Two common stock rather than cash. This might work for Embracer, as it could benefit from any potential upside from the upcoming release of GTA 6 in 2025 (and other Take-Two revenues), as well from any future acquisitions Take-Two might engage in in the future.

Cross-entertainment potential

A key potential upside for Take-Two is in Gearbox’s cross-entertainment roadmap. Borderlands is coming out as a film, featuring A-listers including Cate Blanchett, Kevin Hart, and Jack Black. Depending on the success of the film adaptation, there is space for continuation, with Tiny Tina (having a separate game) possibly warranting a spin-off TV show. A movie is also in the works for Duke Nukem. Games IP has been finding increasing commercial success with TV and film adaptions in recent years. The cross-media value of games IP can provide significant commercial benefits, not just from the video assets, but also in way of deepened fandom with the franchise, and engaging new audiences to generate incremental games and merchandise sales.

Good unit sales with a live operations upside

Gearbox’s titles are typically premium, without having significantly tapped into the live services opportunity. In times of the saturated attention economy, the coming consolidation in live services games will see companies fully dependent on live services increasingly struggle. But, after a consolidation, there typically comes a period of enlightenment and a new equilibrium. Timing-wise, it is a smart move for Take-Two to expand its portfolio to include a company with a solid unit-sales based premium model, and possibly bring in some of its live services experience to capitalise on the franchise fandom fostered by its premium games and coming film releases.

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