Embracer's $2bn+ deal collapsed due to "external factors"

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The CEO of Embracer Group has said the abrupt end to a potential partnership his company was due to announce was brought about by "external factors."

Yesterday, the company revealed in its financial results that a strategic partnership it had been close to securing had unexpectedly been scrapped, leading to the firm to lower its earnings forecast.

CEO Lars Wingefors offered more detail in the subsequent earnings call, transcribed by Seeking Alpha, although he refrained from naming the partner.

Wingefors told investors that, following a verbal commitment from the partner firm in October 2022, all documents had been finalised and the announcement was ready to go ahead of Embracer releasing its full-year earnings.

Embracer asked the partner to confirm it could go ahead with the execution of the announcement, but late into the night before the company "received a negative outcome from the counter party," according to Wingefors – something he said was "unexpected to the management and board of directors of Embracer."

When asked why the deal fell through, the CEO said he believes it was due to "other decisions impacting [the partner, rather] than the agreement itself and our work in this."

He reiterated this when an investor later asked for more detail.

"It was nothing to [do with] the commercial terms," he said. "They were already agreed and everything was done, ready to go. And the feedback, there is a strong belief in the deal on both sides. So, the decision is external factors from this transaction."

While he did not elaborate on who the partner was or what the full deal involved, the CEO described it as a "groundbreaking strategic partnership agreement that would have set a new benchmark for the industry."

As revealed yesterday, the deal would have included more than $2 billion in contracted development revenues over the course of six years.

Wingefors said this would have "enabled a catch-up payment at closing for already capitalised cost for a range of large-budget games." It would have also "notably improved" Embracer's profits in the medium and long term, as well as its cash flow predictability during those contracted development projects."

He later added: "It's been a rough night getting that decision when you have everything prepared presentation, communication and obviously, you have been working day and night, almost sometimes for half a year to achieve something.

"But hey, this is business, and I know shareholders and other stakeholders expect me to win every battle. This was a big one. And we didn't win this one, but I'm sure we will win many of the future battles."

Embracer has been ramping up the scale of the partnerships it makes as it acquires larger IP. The company is working with Amazon to publish the next Tomb Raider game, while its subsidiary Middle-Earth Enterprises is also working with Amazon on a new Lord of the Rings MMO.