Embracer Group’s Financial Crisis Was Just A Matter Of Time

Who could’ve thought the Swedish Nordic Games would become a conglomerate as large as Embracer Group one day, collecting more and more studios one after the other? However, you must have seen it from a mile away, too; when you go on a relentless buying spree without securing returns, you will be hit by an intense financial crisis. That is the crux of the current Embracer Group crisis.

Starting as Nordic Games Licensing, the company acquired the THQ assets and became THQ Nordic, later becoming a holding company, Embracer Group in September 2019. Ever since its establishment, the group has shown keen interest in acquisitions and made a lot of deals in the past few years. However, these decision errors, lackluster projects, and failed deals have now placed the company in a critical situation.

Open letter by Embracer Group CEO on restructuring programhttps://t.co/WFFWziY3v5

— Embracer Group (@embracergroup) June 13, 2023

Embracer Group Held Nothing Back On Acquisitions

Embracer Group’s business strategy involved buying studios and IPs like there’s no tomorrow. Over the years, Embracer Group has grown large enough to accommodate more than 120 development studios under its umbrella. Until 2022, Embracer had already spent more than $8 billion on acquisitions and had no plans of stopping. The company’s major purchases and the following shopping spree started with Koch Media (the current Plaion).

The company’s complete purchase history is unbelievably vast. Some notable purchases include Koch Media/Deep Silver for $150 million which also gave them Dambuster Studio, Coffee Stain, the Goat Simulator Studio for $34 million, the Kingdom Come Deliverance developer, Warhorse Studio for $37.5 million, and the porting specialist and World War Z developer, Saber Interactive for $150 million.

Moving on, the purchases include Borderlands developer Gearbox for a total of $1.3 billion, Aspyr Media for $100 million which could go further, Perfect World Entertainment alongside the massive MMORPG Neverwinter’s developer Cryptic Studios for $125 million, and last but surely not the least; Square Enix’s assets including Crystal Dynamics, Eidos Montreal and Square Enix Montreal for $300 million.

Embracer Group enters into an agreement to acquire Eidos, Crystal Dynamics, and Square Enix Montréal amongst other assets
byu/faffri inGames

And those are just the major ones out of the ton of purchases Embracer Group made in the past few years. Embracer Group now has access to multiple important IPs like The Lord of the Rings, Tomb Raider, Deus Ex, Legacy of Kain, Borderlands, Saints Row, and World War Z to name a few. But, as with any excessive purchasing, the problems started popping up pretty soon.

The Failed $2 Billion Deal Was The Nail In The Coffin

The flaws of Embracer Group’s consistent purchasing started appearing soon afterward. Although the company spent a fortune on acquisitions, there were no notable projects in development to ensure definite returns. Even the projects that were developed turned out to be a disappointment, and it might have been because the focus was too much on more purchases rather than strengthening ongoing projects.

Take a look at the Saints Row reboot for example. The project was such a mess Embracer Group had to shut down the developer; Volition Studio. Similarly, after the statement of “exploiting” Lord of the Rings and over 5 projects in development, The Lord of the Rings Gollum turned out to be a massive disappointment. The holding company’s gigantic collection is surely impressive, but the development quality suffered too much in return.

A letter to our community. pic.twitter.com/vtFM7szLbN

— Volition (@DSVolition) September 1, 2023

These losses were just the beginning of Embracer Group’s crisis. The most critical hit was the failed funding deal. Embracer Group had a mystery deal in the works that would have gained the company 2 Billion dollars in funding. It was an investment in Embracer’s many projects and would have helped them see the light of day. However, the deal was never successful and fell apart.

It was later revealed that the mystery partner of Embracer Group’s failed $2 Billion deal was the Saudi-funded Savvy Games Group. As a result of this failure, Embracer Group lost $2 Billion in funding, and with its shares plummeting, the company was forced to reflect upon the controversial financial decisions and consider cost-cutting methods instead, including many cruel but inevitable decisions.

The Repercussions Still Continue

The company suffered extreme consequences of the poorly planned excessive acquisitions. After the failure of the $2 Billion deal, the company CEO Lars Wingefors issued an open letter that explained the company would be going through restructuring. This includes shutting down or selling off studios, stopping development or delaying projects in progress, and general cutbacks.

The most prominent and probably the cruelest way this restructuring has manifested is in the form of layoffs and downsizing. A lot of employees suffered an imminent termination of their contracts. After Gollum became an utter failure, the developer Daedelic Entertainment saw multiple layoffs and even announced the closure of their development. A similar case was observed after Volition’s closure.

Volition was shut down and additionally, multiple employees were also laid off at Gearbox. We’re not sure how many people were affected, but it surely had a strong impact. Similarly, The latest victim of the layoffs is Crystal Dynamics, as the Tomb Raider studio has finally been hit with the inevitable doom. We’re not sure what this means for some of the critical IPs like Legacy of Kain and Tomb Raider.

[Meta] Crystal Dynamics announces layoffs.
byu/OrangeJr36 inTombRaider

And it’s far from over. This is just the beginning of the mass layoffs and restructuring happening at Embracer Group. We’re bound to see a lot more of these soon, and this has also jeopardized many prospective projects. What about projects still in development? What about future works? All of this has become uncertain as Embracer is now looking for external funding to sustain the projects.

Embracer Group Should’ve Established Some Sustainable Projects First

Embracer Group’s questionable financial decisions finally caught up to it. When the deal failed, the company was hit with a realization albeit a bit late. The tables turned quite cruelly but predictably for Embracer Group. From buying up companies like there’s no tomorrow to cutting costs, laying off employees, and even considering selling previously acquired studios, times changed mercilessly for Embracer.

And honestly, who couldn’t have seen it coming? The way Embracer Group was just recklessly spending money with no major projects to justify it, a crisis of this scale was just a matter of time. When you spend extravagantly and not cleverly, you’re sure to run out of funds at some point. Look at Embracer’s studios, it has gold mines of ideas lying around, but the focus was just more and more expansion.

I believe the company should have prioritized quality over quantity first. Gather a few acquisitions with enticing IPs, and then work with them. Focus on developing a handful of strong projects and wait for their reception. Even if they’re not that successful, at least the losses of the current scale wouldn’t have happened. And if they did manage to create quality products, they could’ve moved on to the quantity thing then.

Embracer Group’s overexpansion was carried out without proper planning. If all these acquisitions had led to an equal number of strong projects, the plan would have been pretty justifiable. Now look at the situation. The reckless decisions of the higher-ups have cost many employees their jobs, who were in no way at fault. The company’s repute and financial status have taken a strong hit and have jeopardized their future projects.

How some of the former Volition employees feel about getting laid off
byu/dlegur inSaintsRow

In conclusion, Embracer Group fell victim to its poor decisions. The reckless acquisitions left little funds for the projects in development. Focus on business rather than development took the company to this crisis, which cruel as it may be, was just a matter of time and is the result of such a haphazard consolidation. Embracer Group should have focused on a select few projects first before excessive spending. I hope it recovers from the current dilemma, as it has too many excellent IPs to work on.