Gearbox Entertainment CEO Randy Pitchford said that selling his company will be good for both gamers and employees.
Gearbox Entertainment CEO Randy Pitchford said that selling his company to Embracer Group for up to $1.3 billion in cash and stock will be good for both gamers and his 550 employees. The employees own 30% of Gearbox, the maker of the Borderlands action-RPG series, and they will be getting paid both upfront and over time, given how the deal’s structure. Their incentive is to create new games that players love. The companies are referring to the deal as a merger, as it involves mostly stock transactions. Gearbox is only getting $188 million in cash and $175 million in stock upfront. The rest of it comes over six years if Gearbox meets financial and operational targets. Pitchford said in an interview with GamesBeat that the deal is good for gamers because Gearbox will be able to work on more games without worrying about access to capital or relying upon external publishers for funding. (2K noted that it still has a publishing relationship with Gearbox for Borderlands). I spoke with both Pitchford and Lars Wingefors, the group CEO of Embracer Group in Karlstadt, Sweden. Wingefors said in an interview that Gearbox will operate on its own and pursue its own creative vision. “We are active, but I think we’re very different,” said Wingefors. “It’s not about competition as such, but it’s about reaching out to people talk to people. If you don’t meet people, they don’t know the alternatives.” Pitchford said the deal had its roots in the company seeking to raise some capital. Jenna Hardy, a Warner Bros. and Disney veteran, came aboard four years ago as chief financial officer and put the processes in place to position Gearbox for some kind of transaction. Pitchford said the team wanted to get chances to do more games that they believed in, instead of being able to only build games that traditional publishers would bet on with Gearbox. The company set up its own publishing business, and it brought in former Marvel leader Sean Haran as chief business officer. Their plan was to round up a new round of capital but without parting with Gearbox’s cherished intellectual property. In that process, they came upon Embracer Group. Wingefors said his company could provide capital and autonomy, and this would allow Gearbox to focus on creation. Pitchford said he was “shocked” to understand Embracer’s model as a holding company for decentralized game studios. “I’m not really a business guy. I’m a creator. I’m a builder,” Pitchford said. “I’m a coder and a designer that had enough luck in this industry that things grew with us. And so we realized we’ve got this engine. We’ve just demonstrated our ability to scale the creative engine because we started the Quebec studio, and we’re able to prove that we can use our processes or methods or culture and scale with people. So now what’s limiting us is, is the capital to invest in our efforts.” Pitchford said that through both publishing and internal development, Gearbox has a lot of games in the works, including Homeworld 3. He said that Gearbox, founded in 1999, has enjoyed profitability for 22 years. It has sold more than 100 million games in its history. Here’s an edited transcript of our interview. GamesBeat: I’m in a bit of shock that so many deals have been happening so quickly that were announced Tuesday night. Lars, why have you been so busy compared to all your slower-moving competitors in this business? Lars Wingefors: I don’t know if I’d agree they’re slower. I know of a few that are very active. I love that competition, in a way. We’re active, and they’re active. But we’re very different. It’s not about competition as such. It’s about reaching out to people, talking to people. If you don’t meet people, they don’t know about their alternatives. We’re doing this every day. It’s not only about me. We don’t quite have 50 people full-time, but if you count all the CEOs and various people engaging in the Embracer process, advisers and so on, it’s a lot of people. It’s an everyday thing. Transactions and getting fantastic companies like Gearbox — this is the biggest acquisition of my life. It’s not even an acquisition. It’s a merger. That’s a quite important point, that differentiation between others and Embracer. We’re building something together. We’re taking equity and we have a long-term vision together. GamesBeat: I watched the presentation, Randy. Why was it a good time for you to do this? Randy Pitchford: We’d started a process to raise some capital. You know enough about the history of Gearbox. We started out doing work-for-hire. We were successful enough that within the margins of that work, we could build original IP and do some things there. Within the margins of that success in turn, well, how do we get a chance to build more of the games we like and build even bigger success? Going from only being able to build games that traditional publishers would bet on. We built a publishing business so that we could have access to platforms and access to customers. As we did all this, we started to realize that our limiting factor changed. It used to be that the limiting factor was people. How much can I work on with my team? I’m not really a business guy. I’m a creator, a builder. I’m a coder and a designer that had enough luck in this industry that things grew with us. We realized that now we have this engine. We’ve demonstrated our ability to scale the creative engine. We started the Quebec studio and were able to prove we could use our processes, our methods, our culture, and scale with people. Now what’s limiting us is capital to invest in our efforts. We have to figure out how to get access to capital. I started out trying to figure that out. I recruited Jenna Hardy, our CFO. She did eight years at Warner and eight years at Disney. She’s world-class. She built out a robust and rigorous financial system that could support all this ambition. I brought in some executive team support with Sean Haran, who was director of business development at Marvel Studios and Riot. He knows what he’s doing. We started — let’s now attack this, getting the best advisors in the world from a financial point of view, and then looking out to raise capital. What I thought the plan was going to be was we’d sell a small portion of our company. Maybe do the same play that Epic did, where we sell a portion of the company and use that capital to build the next Fortnite, or whatever Gearbox is capable of. Along the way there was tremendous interest in that, as you can imagine, but there are tradeoffs as well. You’re necessarily diluting your existing shareholders before you’re fully realizing the value you’ve created.
