After the news broke, Gearbox founder Randy Pitchford and Embracer Group founder and CEO Lars Wingefors spoke with GamesIndustry.biz about the deal.
The first question we asked was why now was the right time for Gearbox, founded in 1999, to give up being an independent studio.
"I'm not sure that's exactly what's happened," Pitchford said. "The whole Embracer strategy depends on the members of the group performing with autonomy and independence toward their ambitions."
Fair enough. So why sell now?
"It's not about selling," Pitchford responded. "Embracer's strategy also provides access to capital, and access to capital was a limiting factor in Gearbox's ambitions."
"The need for Embracer is that it amplifies and accelerates [Gearbox's dream]; it's like a rocket booster for our ambitions and our mission to entertain the world"Randy Pitchford
He added, "Throughout Gearbox's entire history, every partner we've ever worked with -- and a lot that we never have -- have approached us to see if we were interested in acquisition... That's never been the goal.
"What's wrong with me is I think I need to create. My wife explains it as me being a hyper-empathetic. That's why I'm an entertainer, why I'm a magician, why I make video games. I need to create experiences that other people find joy and happiness with. So there's no end game. We didn't create Gearbox as a means to an end. Gearbox is a vehicle for creativity and the generation of happiness. Profitabiltiy is one of our values because we want to always make more than we spend so we can keep that dream going. The need for Embracer is that it amplifies and accelerates that; it's like a rocket booster for our ambitions and our mission to entertain the world."
Pitchford laid out the history of Gearbox as a natural progression. It began as a work-for-hire studio, then grew to the point it could make it's own IP, with titles like Brothers-in-Arms and Borderlands. It then took another step and began acquiring IP like Duke Nukem Forever and Homeworld.
"We felt that to fully maximize this stuff, we were limited by the kinds of things traditional publishers would want to bet on Gearbox with," Pitchford said. "So we knew we had to build a publishing unit so we could have access to platforms and retail, digital or physical."
That led to the creation of Gearbox Publishing. And while other independent studios' third-party publishing arms like Double Fine Publishing were wound down upon joining a larger outfit with its own publishing expertise, Pitchford said Gearbox Publishing will be not just continuing on as it had been but "growing and exploding."
Wingefors noted that Gearbox Publishing will have the opportunity to lean on Embracer's considerable stable of publishing outfits for support or expertise, if it wants to.
"I think we have nine publishers," Wingefors said, making light of Embracer Group's frequently expanding roster of companies.
"I want to find entrepreneurs with the right mindset for the very long term. You see in more and more of our deals that it's more of a merger"Lars Wingefors
Embracer has developed a singular reputation for acquiring companies in bulk, but its appetite for mergers and acquisitions doesn't stand out as much these days given the spike in such deals throughout the industry of late. Despite that increase in activity, Wingefors said Embracer's strategy isn't changing. Not only does he expect to continue with the group's current pace of mergers and acquisitions, he doesn't expect the possibility of rival suitors to meaningfully change how Embracer pursues such deals.
"I think we approach this differently," Wingefors said. "I think we're having success with getting great entrepreneurs on board, and they're not choosing to join and merge with Embracer because they're getting paid the most."
He notes how many of Embracer's deals aren't about entrepreneurs cashing out, with many taking significant equity in the Embracer Group over all-cash deals. Wingefors said he offered Easybrain "hundreds of millions in cash," but the owners preferred an all-equity deal worth $640 million.
Nearly half of Gearbox's $363 million guaranteed purchase price was comprised of Embracer Group shares, and maxing out the $1 billion in potential additional payments is contingent on a significant uptick in the studio's adjusted earnings over the next six years.
"Embracer's not about catching everything," Wingefors said. "I want to find entrepreneurs with the right mindset for the very long term. You see in more and more of our deals that it's more of a merger. People are taking a lot of equity. With the Gearbox team, this is a very long-term plan we have together."
Take-Two has already said that the Embracer deal will not impact its own relationship with Gearbox on the Borderlands franchise, and Pitchford echoed that, saying Take-Two is "absolutely the right partner for us for Borderlands."
"Partnerships are a big part of our future. Not just with 2K, but with other potential publishers and first-parties and retailers and technology companies"Randy Pitchford
"Just because we have access to capital, and we do have significant and growing capability in development and publishing, we don't necessarily believe we're the best at every single component of some of the aspects of successfully creating content and entertaining people," Pitchford explained.
"Partnerships are a big part of our future. Not just with [Take-Two], but with other potential publishers and first-parties and retailers and technology companies. There's a number of those partnerships active now and there will be more active moving forward."
Pitchford also allowed for the possibility that those partnerships would come within the Embracer Group itself.
"We have some great IP, and it's clear that not all of our IP is being maximally deployed for the demand our audience has for content with this IP," Pitchford said. "So part of the Gearbox strategy is to better maximize all of the IP we have, and we will do this simultaneously to creating new IP, which we love doing and have tended to have success with as well. We have a lot of plans that will become clear, but it will require some growth and capability that's larger than what we currently have."
Given the autonomy of studios within the Embracer Group, Pitchford said the key is that any such collaboration is something that makes sense for both sides of it.
"There's probably some incredible talent elsewhere in the Embracer Group that would absolutely love to spend time in some Gearbox IP. And likewise, there's probably some Embracer IP we might want to play with, or some titles which our publishing unit might bring some advantages to. We'll figure that out. This is the beginning of that, and I'm excited to do that."