On September 30, 2020, UK-based Sumo Group plc (AIM:SUMO) announced that it had agreed to acquire Pipeworks, Inc., an innovative Oregon-based game developer. Under the terms of the transaction, Sumo agreed to acquire 100% of Pipeworks for total consideration up to $99.5 million, which is comprised of cash, shares, and a contingent earn-out. The initial consideration consists of a $35 million cash payment and $24.5 million in new ordinary shares, while the earn-out consideration is up to $40 million and will be paid in two tranches, subject to financial targets being met. The first tranche of $8 million will be based on FY20 EBITDA performance while the second tranche of $32 million will be based on both FY21 EBITDA performance and revenue visibility criteria for FY22. If achieved, the earn-out consideration will be paid in early 2022, in a combination of cash and shares. The shares are subject to both hard lock-up and orderly market arrangements, in accordance with standard UK market terms.
With reported revenue and EBITDA of $19.4 million and $4.2 million, respectively, for the last twelve months ending June 30, 2020, acquisition multiples translate to a revenue multiple of 5.13 and EBITDA multiple of 23.69. For the year ending December 31, 2019, Pipeworks reported revenue and EBITDA of $14.8 million and $2.4 million, respectively.
Pipeworks was founded in 1999 in Eugene, Oregon as a provider of full development, co-development, and live operations to the world’s premier video game publishers. The Pipeworks team of 130+ have over 1,200 years of combined experience and consist of the industry’s leading minds in emerging technology and game science. Pipeworks serves a long list of customers who are transforming modern gameplay with artificial intelligence, machine learning, and virtual reality, such as EA Sports and Google.
Pipeworks represents one of Sumo’s largest acquisitions to date and provides Sumo a strategic entrance into the U.S. market. With Pipeworks, Sumo now has a team of around 1,000 worldwide. Lindsay Gupton, Pipeworks CEO, stated “We are absolutely thrilled to be joining Sumo Group. Our ambition is to be the best and most innovative game developer in North America and this will be a ‘level-up’ for all of us at Pipeworks. I’ve known Carl and the team at Sumo for a long time and have the greatest respect for them as a company, as game developers, and most importantly, as people. The cultural fit between Pipeworks and Sumo is remarkable, and we all love to make great games with great partners. I can’t wait for this next big chapter in the long history of Pipeworks Studios.”
Sumo expects Pipeworks to significantly enhance earnings in FY21. For FY20, Sumo is anticipating Pipeworks will contribute approximately $0.8 million to Sumo’s EBITDA.
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