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Start your engines

14 December 2020 By Oliver Taslic

American entertainment giants have discovered an extra gear when competing for a London-listed developer of racing games. Electronic Arts, the $40 billion maker of the “FIFA” soccer games, on Monday announced it had agreed to buy Britain’s Codemasters for 945 million pounds ($1.3 billion) in cash, overtaking a previous cash-and-shares offer from rival Take-Two Interactive Software. Investors can sit back and watch the race unfold.

It’s not immediately obvious what EA sees in Codemasters, which specialises in racing games like its annual “F1” series, as well as off-road racer “Dirt”. Analysts expect the company’s revenue to grow by just 6% in the two years to March 2023, according to forecasts compiled by Refinitiv, while its EBITDA is projected to fall about 4% to 35 million pounds over the same period. Yet EA’s offer of 604 pence per share in cash represents a turbocharged 25 times Codemasters’ expected EBITDA for the current financial year, after deducting net cash of around 50 million pounds. The U.S. publisher trades on a multiple of just 15 times.

Nevertheless, Codemasters has a flair for racing games that could prove attractive. Racers are an enduring genre, and hits like “F1” could put some horsepower into the U.S. company’s monthly subscription service, which currently has over 6 million customers. EA is also a market leader in so-called “games as a service”. Small, in-game transactions are controversial among gamers, but could boost Codemasters’ revenue and profitability.

Take-Two on Monday said it would consider its response, but at 522 pence per share, based on its closing price on Friday, the $22 billion company’s cash-and-shares offer is well behind the pace. The “Grand Theft Auto” maker will need to hit the gas to have any chance of adding “F1” to its portfolio of sports games, which includes the “NBA” series.

Codemasters shareholders who pushed the company’s stock as high as 654 pence on Monday are clearly expecting the bidders to complete a few more circuits of the track. The U.S. giants – and any other potential buyers – will have to judge if the British company’s extra gear justifies taking the chequered flag.


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