SteamWorld firm Thunderful's quest to become AA starts with an IPO

The Thunderful Group is having a transformative first year.

Having formed in December 2019, the Swedish company has since acquired three games studios -- including UK indie developer and publisher Coatsink Software -- and is now preparing to list on NASDAQ First North Premier.

If you're unfamiliar with the Thunderful Group, a quick history lesson is in order.

40 years ago, Swedish distributor Bergsala became the exclusive partner for Nintendo in the country, later expanding this remit to all of the Nordics, and then the Baltic states. The journey to the formation of the Group began in 2011 when Bergsala acquired half of local developer Image & Form, which had just published the first entry in its now flagship SteamWorld series. Bergsala later purchased 50% of another local studio Zoink. Along the way, it also acquired other independent distributors Amo Toys and Nordic Game Supply.

In 2018, Image & Form and Zoink merged together to form a new parent company, Thunderful, which began acquiring other games companies -- starting with UK-based, Japan-focused publisher Rising Star Games.

Thunderful and its distribution sister companies finally came together at the end of last year to form the Thunderful Group, and CEO Brjann Sigurgeirsson says the benefits immediately became apparent.

"This year, the synergies have just been fantastic as we've gathered all of the owners of the companies rather than having them spread out in various co-ownerships," he tells GamesIndustry.biz. "It's accelerated everything we do."

In the run-up to the group's formation, the Thunderful teams discussed their long-term strategy and it soon became clear that significant funds would need to be raised in order to achieve their goals. This led to plans for an Initial Public Offering.

"We started looking at the possibility of going for a listing because we quickly realised that we will need access to the capital markets to be able to sustain a [realistic] M&A strategy going forward," Sigurgeirsson explains. "That's one of the main reasons, so we can continue the acquisitions we've already been doing.

"2020 has really been an expansion year for Thunderful Group -- and that wouldn't have been possible if we hadn't consolidated into a group."

If successful, the IPO will make Thunderful Group the latest in a string of games companies that have floated in the last few years. In the last few months alone, the companies that have initiated or prepared a listing include engine provider Unity, mobile esports tournament organiser Skillz, mobile developers Huuuge Inc and Playtika, and Roblox, the developer behind the hugely popular kids game of the same name.

"2020 has really been an expansion year for Thunderful Group -- and that wouldn't have been possible if we hadn't consolidated into a group"

It's a sign of strength for the global video games industry, and one that should bolster Thunderful's confidence, although Sigurgeirsson reports the group is "not [looking too closely] at other gaming IPOs."

"Obviously if they all failed miserably, that would have a bearing on us," he says. "But our strategy was clear from the beginning.

"We want to take the cash flow from the distribution part of our business and pour it into the games development and publishing part. That means we already have a stable business. We're not going to the market in the hopes of succeeding -- it's more that we want to accelerate what we are doing. It's a low-risk investment in gaming."

The company's financials certainly make for comforting reading to any potential shareholders. For the nine months ended September 30, 2020, operating income amounted to SEK 1.8 billion ($210.8 million) -- up from SEK 1.1 billion ($128.8 million) during the same period last year -- and adjusted operating profit reached SEK 153 million ($17.9 million), up from SEK 86.2 million ($10.1 million).

This already puts it on track to beat the company's previous full year -- January 1 to December 31 2019 -- when the Group generated operating income of SEK 2.1 billion ($246 million), with adjusted operating profit of SEK 209.1 million ($24.5 million).

There are a couple of caveats. For one thing, the pandemic will have boosted this year's revenues somewhat, but Sigurgeirsson believes the company's financial history is still a tale of stability and growth.

For another, Bergsala -- the largest part of the Group -- is entirely dependent on Nintendo as its only client. Of course, the ongoing success of the Switch means this has not been an issue for a good few years. The other distributors in the company also benefit from the success of their partners, which include Grand Theft Auto developer Rockstar Games, its sister label 2K Games, and peripherals firms such as Razer and Thrustmaster.

"So we feel quite secure doing an IPO at this point," says Sigurgeirsson.

"While we don't want to leave the triple-I space, we want to firmly cement ourselves in the AA space"

The Group hopes to raise SEK 750 million ($87.3 million) and already has plans for this capital. Around 30% will be used to pay off any debts, such as those that arose during the acquisition of Coatsink. And 10% will be used to invest more in the current games businesses, which will help develop "more and larger high-quality games and intellectual property," according to the prospectus -- more on that later.

The rest becomes what Sigurgeirsson describes as a war-chest for additional acquisitions in order to maintain momentum of the Group's current strategy.

Some of this may be spent close to home. Back in January, the Group acquired local studio Guru Games -- now renamed Thunderful Skövde for the town in which it's based. Thunderful now has four development studios across the south of Sweden.

"We've grown our respective studios alongside each other," Sigurgeirsson says of the Group's domestic acquisitions. "Bergsala has had our back this whole time and allowed us to grow faster than the others, and so we can now bring them into the family.

"You could say there are two different strategies at work here. One is to find different studios that are geographically well suited for us -- so within Sweden or the Nordics. But then we're also talking to other players, and the first example is Coatsink in the UK. That was transformative -- those guys are brilliant at what they do, they make their own games like we do. They do a little bit more work-for-hire than we do, but they also publish other people's games. So it's easy for us to understand their business and it was easy for them to understand what we're about."

These acquisitions are not fuelling growth for the sake of growth. Thunderful plans to elevate its place in the games industry, with the current goal of becoming a AA developer and publisher, rather than one solely focused on indie-style endeavours. And the company is trying to keep up with the growth of its flagship IP, the SteamWorld series, which has sold over four million copies worldwide.

"We already have a stable business and want to accelerate what we are doing. It's a low-risk investment in gaming"

"That's done really well for us," says Sigurgeirsson. "It's ironic -- we've grown quite quickly in recent history, but we still have problems making games fast enough. You can't rush games, that's not what I'm talking about, but we don't have the manpower... We're working on more ideas than before, and while we don't want to leave the triple-I space, we want to firmly cement ourselves in the AA space... We're thinking about the type of games we want to make in the future, and we need more talented developers on our side. "

Acquiring Coatsink and its workforce of around 100 people was a big step forward, and unlike Guru Games, for example, the UK-based developer has retained some level of autonomy. For one thing, the company has already established its own identity and is even publishing other studios' titles. To bring it fully into the Thunderful fold would just confuse matters, says Sigurgeirsson. "We're leaving Coatsink alone. We're not going to rename them Thunderful Sunderland -- that sounds like a theme park or something. They're going to continue to be Coatsink, but we're going to work together, closely on some things and remotely on others.

"We want to work with as many great studios as possible so we can accelerate what they are doing, but also to realise our own ideas and also accelerate our own business."

Whether future acquisitions will be afforded the same level of freedom depends on who they are and what they want from the deal. But Sigurgeirsson says Thunderful is willing to take a hands-off approach if the target company is doing well on its own. It's more about the opportunity to collaborate.

"We think we can bring something good [to the table] -- not just cash and shares, but [experience]," he says. "It's good to have someone to toss ideas around with and we can do that."

Thunderful Group expects its first day of trading on First North Premier to be December 7, but the prospectus reveals this is just the first step. The company also hopes to list on NASDAQ Stockholm within the next two years.

It's a big step for a company that just a few years ago comprised two indie studios and a local distributor, but Sigurgeirsson remains undaunted by the prospect of being accountable to shareholders. He believes it's a natural step of the Thunderful journey.

"It's obviously going to change us a little bit," he admits. "I used to think it was a fantastic thing to be an indie developer and sharing ideas with other indie developers. But as you grow, you start projects with other partners that force you to be secretive about some things and open about others.

"I think our employees are worried that they're going to screw up, but I think we've been very gentle about this, trying to explain to everyone that it's not a dangerous thing. We're ready for this now, and we're prepared for what it entails, in terms of responsibility."