Sumo Group to acquire Lake Street Labs Buyer Corp including Pipeworks for $99.5m

Pipeworks Studio - Acquired by SUMO Group

Sumo Group plc (LON:SUMO), the award-winning provider of creative and development services to the video  games and entertainment industries, has announced that it has signed a contract to acquire Lake Street Labs Buyer Corp, the owner of Pipeworks for an enterprise value of up to $99.5m (based on the Reference Share Price), with initial consideration of $59.5m. This initial consideration is being satisfied as to $35m from the Group’s existing cash resources and $24.5m through the issue of new equity in Sumo Group.

Founded in 1999, Pipeworks is an innovative, well-established, and respected US video games developer based in Eugene, Oregon. It provides full development, co-development, and live operations to premier video game publishers and other partners. Since foundation, Pipeworks has shipped close to 100 games and advanced technology solutions to nearly 50 clients and partners.

Pipeworks is also a leader in the application of emerging technology and game science to adjacent complementary markets, including the US public sector, distance learning, remote healthcare, and AI-driven simulation.


Pipeworks gives Sumo Group a significant presence on the West Coast of the US enabling better access and support to existing and potential new clients based in North America. 
Revenue on a standalone basis of $14.8m, generating underlying adjusted EBITDA of $2.4m in the year ended 31 December 2019 and equivalent figures of $19.4m and $4.2m respectively for the 12 months ended 30 June 2020. 95.1 per cent of forecast Games revenue is contracted for the remainder of the year to 31 December 2020. Games revenue is expected to represent approximately 80 per cent of total revenue. 
Growing talent is vital to the success and growth of Sumo Group. Pipeworks’ 134-strong team brings an abundance of valuable experience and takes the Group’s headcount to nearly 1,000. 
● The Acquisition brings additional Original-IP and Own-IP to the Group, including the video game Prominence Poker. 
Strong cultural alignment – the business and its management, including CEO Lindsay Gupton, are well known to Sumo Group, with Pipeworks and Sumo Digital sharing ownership history, as part of Foundation 9 Entertainment. 
Initial consideration satisfied by $35m in cash and by the issue of 9,893,940 new ordinary shares (representing 6.2 per cent of the current issued share capital). Management and employee shareholders will be subject to a 12-month hard lock-up from issue and a subsequent 12-month orderly market arrangement, both on standard UK market terms. Half of the shares issued to the Institutions as part of the initial consideration will be released from a hard lock-up following announcement of Sumo Group’s results for the year ending 31 December 2020 and the balance will be released six months thereafter. 
Earnout consideration of up to $40m will be payable based on the performance of Pipeworks in the years ending 31 December 2020 and 31 December 2021, and will be settled partly in cash (between 30 per cent and  70 per cent at the discretion of the Company), with the balance being settled in Sumo Group ordinary shares. 
The Acquisition is expected to be significantly earnings enhancing in the year ending 31 December 2021, being the first full year of ownership. 
● Extension of the existing RCF banking facility to £30m from £13m to support the enlarged Group’s financial liquidity position. Following completion of the Acquisition, Sumo Group expects to have net debt close to zero. 
The Acquisition is expected to complete by the end of October 2020. 

Acquisition aligned with Sumo Group’s growth strategy:

Client expansion – Pipeworks has built a very strong US-based client list, including Electronic Arts (Madden NFL), Wizards of the Coast, Google, Genvid, and Age of Learning, which both adds and is complementary to Sumo Group’s existing relationships;

Geographical expansion – Pipeworks’ comparatively affordable West Coast location will bring improved access to the US market;

Expansion of talent – The Acquisition will increase Sumo Group’s headcount by 16 per cent to nearly 1,000, and provide a valuable US hub from which to expand further;

New Original-IP opportunity – Pipeworks will continue creating innovative IP, leveraging its vanguard technology, and design ingenuity; and

Entry into new markets – Pipeworks has a proven ability to diversify into new adjacent markets, including non-gaming applications using game science and unique technology combined with its strong creative innovation.

Carl Cavers, Chief Executive Officer of Sumo Group, said:

“We are delighted to announce the acquisition of Pipeworks, the largest acquisition Sumo Group has made since IPO. The acquisition gives us an instant, established and significant presence in the important North American market, with improved access to both new and existing clients and markets. Having known Lindsay for a long time and been a keen follower of Pipeworks, I am naturally delighted to welcome Lindsay and his team to Sumo Group and look forward to working together and sharing an exciting future.  This is a major step forward for our business.

“Sumo Group is thriving. Our underlying market is very strong, and we are seeing good opportunities for new games, including Original-IP developed by our talented studios. I would like to thank our team, once again, for their great work, which continues to drive the Group’s success.”

Lindsay Gupton, Chief Executive Officer of Pipeworks, added:

“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.”

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