Embracer Group to transform into three separate companies – Asmodee Group, Coffee Stain & Friends, and Middle-earth Enterprises & Friends

Embracer Group has announced its intention to transform into three standalone publicly listed entities: Asmodee Group, Coffee Stain & Friends, and Middle-earth Enterprises & Friends.

The three separate publicly listed entities are expected to consist of:

• Asmodee Group – A global leading tabletop games publisher and distributor with an extensive studio network and intellectual property catalog.
• 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.
• 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.

The existing Embracer Group listing on Nasdaq Stockholm will be renamed to Middle-earth Enterprises & Friends, and shares of Asmodee Group and Coffee Stain & Friends will be distributed as dividends to shareholders of Embracer Group. The listing and distribution of Asmodee Group shares is expected to take place within 12 months, and Coffee Stain & Friends shares during calendar year 2025.

Embracer Group co-founder and CEO Lars Wingefors, under the company name Lars Wingefors AB, will form a new long-term ownership structure that includes the current holdings in Embracer Group and remain a “long-term, active, committed, and supportive” owner of all three companies.

“The Board of Directors, together with executive management, propose to transform Embracer Group into three separate, listed companies,” said Embracer Group chair of the board Kicki Wallje-Lund in a press release. “This transformation is an important step in unlocking shareholder value. With this new structure, the three entities will be able to focus on executing their core strategies and leveraging their own strengths, providing more differentiated and distinct equity stories to both existing and new shareholders. After careful evaluation of various strategic alternatives, we strongly believe that this decision will benefit all stakeholders and position us for continued success in the future.”

Wingefors added, “This move has been made with the intention to unleash the full potential of each team and 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. This move 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 for gamers and fans across the globe.”

Find further details below.

Background and Strategic Rationale

Since its inception, Embracer Group has grown into a global group of creative and entrepreneurial businesses in PC, console, mobile and other related media. This has been possible through the Group’s decentralized operating model, where great entrepreneurs run operations as part of 11 operative groups—each with their own distinctive heritage, intellectual properties, branding, business strategy, and operations. Embracer Group’s strategy has been built around backing entrepreneurs and creators within gaming and entertainment with the ambition to achieve soft synergies from its expanded eco-system. The Group has an extensive catalog of over 9003 fully owned or controlled franchises, including some of the most popular and iconic titles in gaming, comics, and other media. The current structure and model have served the Group well and have been of paramount importance in building a global group with operations in more than 40 countries.

During the past years, the Group has made significant investments in acquisitions and into a strategy of accelerated organic growth. To further realize the untapped potential in Embracer Group and better optimize the use of its resources, Embracer Group announced a restructuring program in June 2023 divided into different phases lasting until March 2024. Focus of the program has been cost savings, capital allocation, efficiency and consolidation, while also divesting selected studios.

Following a careful and thorough review, it is the assessment of the Board of Directors that the current Group structure does not create optimal conditions for future value creation both for Embracer Group’s shareholders and other stakeholders. To continue the transformation of Embracer Group into the future for the benefit of all employees, gamers and shareholders, the Board of Directors and the executive management have therefore decided to propose a separation of Embracer Group, creating three separate publicly listed entities: Asmodee, Coffee Stain & Friends, and Middle-earth Enterprises & Friends.

The Board of Directors have concluded the following:

• 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 intellectual properties, companies and people will still be enabled and encouraged across the entities on market terms.

Asmodee Group

Asmodee is a leading international publisher and distributor of board games, trading cards and digital board games with 23 fully owned studios and 300-plus intellectual properties and constitutes the Tabletop Games operating segment of Embracer Group. As per LTM December 2023, Asmodee generated net sales of SEK 14.8 billion, with Adjusted EBITDA of approximately SEK 2.3 billion, EBITDAC of approximately SEK 2.0 billion, Adjusted EBIT of approximately SEK 1.9 billion and free cash flow after working capital of approximately SEK 2.1 billion.

After fiscal year 2024 / 2025, Asmodee has an ambition to grow organically in line with the market, which translates into a mid-single digit organic growth in addition to any acquisitive growth. Asmodee’s ambition is also to expand its margins from current levels as a result of an improved revenue mix and continued cost management while maintaining a high cash conversion.

The spinoff of Asmodee with a listing on Nasdaq Stockholm is expected to have value-enhancing benefits through greater focus on its core strategy, portfolio and markets. The ongoing transmedia collaboration around Middle-earth and many other intellectual properties is expected to continue after the completion of the spinoff. As a global leader in board and trading card games, with a proven track-record of profitable growth, Asmodee is well-positioned to build on its strategy and continue to prosper as a standalone entity. The spinoff is also expected to enable Asmodee to quicker resume its value accretive M&A strategy.

23 in-house studios develop tabletop games for all types of players across social, tabletop, and lifestyle, including a steady addition of new content to key brands. The catalog of 300-plus owned intellectual properties include the beloved board games Ticket to Ride, 7 Wonders, Azul, CATAN, Dobble, Exploding Kittens, and an extensive number of distributed games and intellectual properties. Asmodee is also developing a wide range of licensed tabletop games based on The Lord of the Rings, Marvel, Game of Thrones, Netflix, LEGO, and Star Wars, including the recent successful trading card game release of Star Wars: Unlimited.

Coffee Stain & Friends

Coffee Stain & Friends is intended to consist of leading publishers and developers focused on a variety of games for PC, console, and mobile, including community-driven free-to-play games, LiveOps games, and indie / AA games.

As a standalone company, Coffee Stain & Friends will be able to better showcase its high margin profile and strong cash flow profile coupled with an enhanced ability to resume and allocate resources towards opportunities to maximize the long-term value creation.

The entity will operate under two distinct segments: premium and free-to-play. Premium PC and console operations will include among other Coffee Stain, Ghost Ship, Tarsier, and Tuxedo Labs, as well as THQ Nordic and Amplifier Game Invest. Intellectual properties include Deep Rock Galactic, Goat Simulator, Satisfactory, Wreckfest, Teardown, and Valheim, as well as more than 200 other intellectual properties. Free-to-play operations will include Easybrain, Deca, CrazyLabs, and Cryptic. Intellectual properties include Sudoku.com, Blockudoku, Jigsaw Puzzle, and many other intellectual properties. Key published free-to-play games based on licensed intellectual properties include Star Trek Online and D&D Neverwinter Online.

Middle-earth Enterprises & Friends

Middle-earth Enterprises & Friends is intended to remain a creative powerhouse in AAA game development and publishing for PC and console, and the stewards of The Lord of the Rings and Tomb Raider intellectual properties.

As a standalone company, Middle-earth Enterprises & Friends will operate as a more transparent entity, offering a better structure to maximize the potential of its highly strategic franchises, with focus on the Lord of the Rings and a number of other key intellectual properties. Decision-makers will be closer to the organization, leading to enhanced capital expenditure management, accountability, and well-balanced investments to optimize financial performance and profitable growth over the long term.

Middle-earth Enterprises & Friends will be the home of critically acclaimed studios, including Crystal Dynamics, Dambuster Studios, Eidos-Montreal, Flying Wild Hog Studios, Tripwire, Vertigo Games, Warhorse Studios, and 4A Games among many others. intellectual properties includes Dead Island, Killing Floor, Kingdom Come: Deliverance, The Lord of the Rings, Metro, and Tomb Raider, among many others. The group will include PLAION, Freemode, Dark Horse, and other businesses.

Illustrative Pro Forma Financials by Entity and on Group Level

LTM as per Q3 Fiscal Year 2023 / 2024 (January 1, 2023 to December 31, 2023)

SEK, billion	Asmodee Group	Coffee Stain & Friends	Middle-earth Enterprises & Friends	HQ	Embracer Group
Net sales	14.8	10.9	14.1	0.0	39.7
Adjusted EBITDA	2.3	4.2	4.1	-0.3	10.4
Adjusted EBIT	1.9	2.8	2.0	-0.3	6.5
Capex	-0.3	-2.2	-2.9	0.0	-5.4
EBITDAC	2.0	2.1	1.2	-0.3	4.9
# headcount	2,450	3,150	4,550	50	10,200

Fiscal Year 2022 / 2023 (April 1, 2022 to March 31, 2023)

SEK, billion	Asmodee Group	Coffee Stain & Friends	Middle-earth Enterprises & Friends	HQ	Embracer Group
Net sales	13.4	10.5	12.3	0.0	36.2
Adjusted EBITDA	2.3	3.8	3.2	-0.2	9.2
Adjusted EBIT	2.0	2.6	1.6	-0.2	6.0
Capex	-0.3	-2.2	-3.3	0.0	-5.8
EBITDAC	2.0	1.6	-0.1	-0.2	3.3

As of December 2023, the annualized run-rate capex for Coffee Stain & Friends and Middle-earth Enterprises & Friends was significantly reduced, to approximately SEK 1.5 billion and SEK 2.3 billion, respectively. Based on run-rate capex, the EBITDAC for Coffee Stain & Friends as per LTM December 2023 would be SEK 2.7 billion (25 percent margin), and for “Middle-earth Enterprises & Friends” it would be SEK 1.8 billion (13 percent margin).

The exact allocation of companies and assets between Coffee Stain & Friends and Middle-earth Enterprises & Friends is still subject to minor potential adjustments in the period leading up to the spinoff of Coffee Stain & Friends, based on strategic and other considerations. It is intended that Asmodee, Coffee Stain & Friends, and Middle-earth Enterprises & Friends parent companies will be headquartered in Karlstad, Sweden. Asmodee’s operational headquarters will remain in Paris.

Transformation Structure and Process

The Board of Directors proposes that shares in two of these entities, Asmodee and Coffee Stain & Friends, will be distributed to the shareholders of Embracer Group, and listed on Nasdaq Stockholm. The third entity, Middle-earth Enterprises & Friends, will remain within the current listed company Embracer Group, which will eventually be renamed at the same time as the Coffee Stain & Friends spinoff.

The intention of the Board of Directors of Embracer Group is to carry out both spinoffs by way of a dividend distribution of all shares, a so-called Lex ASEA dividend. Such dividend is subject to shareholders’ approval at a general meeting in Embracer Group. The current dual-share class of A and B-shares will be replicated into the new public entities. Subject to approval of the general meeting of Embracer Group and certain other customary conditions, it is anticipated that a listing of Asmodee can be completed within twelve months. Additionally, a separation of Coffee Stain & Friends is expected in calendar year 2025.

As part of the spinoff preparation for Asmodee, Embracer Group has agreed with the management of Asmodee to renegotiate the existing earnout structure. Through the new structure, the management of Asmodee will change their indirect ownership in Asmodee of 4.72 percent (current earnout structure entitling management to exchange that ownership to B shares of Embracer Group if earnout conditions are met) into a direct ownership of 4.72 percent in the Swedish Asmodee holding company, the entity which is intended to be listed on Nasdaq Stockholm. The new agreement with the management of Asmodee means that a maximum of approximately 41 million B shares in a share earnout will be reduced from Embracer Group as of this current quarter.

As part of the transformation and ahead of each separation the full capital structure, including both equity and debt, will be reviewed in Asmodee and Coffee Stain & Friends to create the best possible long-term foundation for each entity as a separately listed company.

Leadership and Organization

Ahead of the initiation of the separation process of Asmodee and in line with already planned governance evolutions, Stéphane Carville, current CEO, and Marc Nunes, current COO and founder, will join and play active roles in the Board of Directors of Asmodee. Thomas Koegler, a longstanding operational and executive leader at Asmodee and current deputy COO, will in the coming months become Asmodee CEO supported by key leaders within Asmodee.

For Coffee Stain & Friends, Anton Westbergh, current CEO of the operative group Coffee Stain, will take the leading role in the process leading up to the separation. The Operative Group CEOs of DECA Games, Easybrain, Amplifier Game Invest, and THQ Nordic will report to Anton Westbergh starting April 22, 2024.

For Middle-Earth Enterprises & Friends, Phil Rogers will take the leading role in the process leading up to the separation. Phil Rogers is currently interim Group Chief Strategy Officer, with responsibility for the concluded restructuring program, and CEO of the operative group Crystal Dynamics—Eidos. The Operative Group CEOs of PLAION, Dark Horse and Freemode will report to Phil Rogers starting April 22, 2024.

Stephane Carville (until the nomination of Thomas Koegler as Asmodee CEO in the coming months), Anton Westbergh, and Phil Rogers are by April 22, 2024 appointed to the executive management of Embracer Group. The executive management of Embracer Group AB will by April 22, 2024 consist of Lars Wingefors (Group CEO), Johan Ekstrom (Group CFO and deputy CEO), Careen Yapp (Chief Strategic Partnership Officer), Ian Gulam (Chief of Staff, Legal and Governance), Anton Westbergh, Phil Rogers, and Stéphane Carville.

Capital Markets Days

Embracer Group’s Capital Markets Day, that was planned to take place in the first half of 2024, will be replaced by individual events for each of the three entities well in advance of listing or rebranding.

And here is an open letter from Wingefors about the transformation:

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 nobile. 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 approximately 20 percent of the capital and 40 percent 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