TWIG #180 Why Ubisoft became a target of a hostile takeover | Game Industry Library

[Music] all right quickly private equity uh eyeing ubisoft as the next gaming acquisition so evidently big pe firms blackstone and kkr are looking at ubisoft um again not surprising because kkr and and blackstone look at a lot of this stuff um but but they are basically studying the french business and looking at preliminary takeover interest um but they haven't entered into any serious negotiations yet is what the bloomberg sources are saying according to sources from this is a kotaku article which you know take it for what that is but ubisoft uh they have some contact in ubisoft that basically said they're working with consulting firms historically to audit the business to to tidy up the books for sale is the speculation which is not kind of nonsense really honestly but um

and this ubisoft ceo is basically neither confirming or denying that potential buyers have approached it um okay and then the kotaku gets stupid again because they're stupid right they basically said that claiming that they are getting ubisoft at a huge discount because the price was 110 in 2018 and now it's 41. right they're [ __ ] morons right absolute morons right the reason the stock is down more than half is because the company is [ __ ] jet not performing right it's like it's not worth what it was back then it was doing well then it's not doing well now so that's not worth that because it was worth then but back then it's a ridiculous assumption right um and uh what else oh and they also say that the the ceo is looking for an exit right all right so again i continue to believe that ubisoft is probably the one the most mismanaged console pc company in the world right and well besides still front and um and uh

embracer no embracer is more at the highest level that okay the uh way of too many pet projects there's not enough concentration or focus on their core franchises they continue to make the same game over and over again and that was a problem that existed with the uh old boss who got fired for me too stuff um but i think the opportunities are pretty high um you know for a company to re take this over because the franchises are really really well loved and and and and there's a lot of appeal to those franchises um so a private equity firm makes sense uh because the company is relatively cheap generally speaking to their potential but here's the fundamental problem and i looked at this and this is one of those things these stats that i i i i tried to research it but because it makes no sense to me that this is true but if it is true this is where the opportunity really lies so if this is not 100 true it's basically

directionally true right is that they said they have 22 000 people at ubisoft right 22 000 right this compares to 11 000 for ea ea generates 7.5 billion dollars in revenue and ubisoft generates 2.3 billion in revenue so let's get this straight they have double the number of employees and generate one-third of the revenue of ea someone's doing something wrong right i mean clearly that is this is the fundamental problem and this is why it's interesting to pe right it's because if they can right this ship and cut like half the people and generate more revenue then they've actually gotten a huge return on this asset right which i don't know if it's possible but it seems plausible given what's going on because i think if you do the stat for activision it's very similar right um but there's huge risks with these type of transactions right like i don't know how many developers want to be part of blackstone or or uh or any of these other pe firms right so

that that's one thing right uh they can lock up a lot of these employees but ultimately like people are gonna fall through the cracks and bail right and so their capabilities are gonna be hindered right and if they do these broad sweeps of people like basically fire everyone in paris for instance right that may cause like a ripple effect across the organization who knows right um you can't even do that like french companies can't do that they can no i know it's really difficult to do that no and and then this is their biggest problem so these the reason i've been saying ubisoft is not an acquisition target so those things carry forward with the pe stuff is that french law is so onerous in terms of firing people that you have to pay them out for a certain period of time like in an egregious amount of time like five years or something i don't know depending how long they worked at the company you have to pay depending that and careers are probably long at uh so in my understanding the majority of the bloat for ubisoft is in paris and france in general like they are just not making any games that matter out there versus like you know montreal or um

other parts of their organization um so anyway all these challenges still exist um with with doing this but the good news here is that if they can come to terms with eve and and his his his family who own i think it's like 15 to 20 of the company or voting shares anyway um maybe they there's a way that they can coexist together and manage it together over this process and um and uh and it'll be interesting to see if it actually materializes but it in some ways it's almost the only way out of this situation uh that they put themselves in because i just don't think there's an i don't think there's an appetite at the highest levels to actually do this type of work that needs to be done and cut cut half the people you know they they have to like i don't know i don't know much about ubisoft i you know because it's not a mobile company but i did read about their latest mobile game that is coming out the the tom clancy shooter

and part of that like they were kind of explaining how they made it there were 11 studios worldwide working on the mobile version of tom clancy i'm not [ __ ] you i actually counted it there's like everything from shanghai to helsinki to paris to like everybody was giving feedback and and apparently working together and they were kind of saying how this collaboration was great how how all the 11 studios came together on one mobile game so yes based on that one anecdotal information they might not be as as um as efficient that you could be but on the other hand i do have to say like if their majority of development is out of montreal the sala like due to the uh some kind of a tax relief of or some kind of things that are happening in in the uh the quebec region of canada uh the mana or or the uh you know the salaries are essentially net lower than than the employees that

you would hire in in say romania which is like without all the remaining romanians come on you bastard say something bad about it good there's nothing bad about our country there's nothing bad it's just like it's not the wealthiest country of europe there's a i don't think they're part of the other schengen canada it's not really around canada is not the wealthiest what are you talking about yeah go ahead why wait wait this is irrelevant facts like the fact of the matter is they have 22 000 employees when they should have less than ten thousand yeah all i want to say is low cost that's the reality of canada yeah low cost doesn't matter low cost what no cost whatever the fact is well okay whatever moving on [Music]

Summary

Ubisoft has emerged as a potential target for private equity firms, including Blackstone and KKR, as the company faces significant operational challenges and declining market performance. While the company has not confirmed formal negotiations, speculation persists that management is auditing internal processes to prepare for a potential sale. The primary thesis for a takeover rests on the belief that the company is severely mismanaged, characterized by a lack of focus on core franchises and an unsustainable organizational structure that has failed to keep pace with industry standards.

The core of the investment opportunity lies in a massive discrepancy between headcount and revenue generation. Ubisoft currently employs approximately 22,000 staff members to generate 2.3 billion dollars in annual revenue. In contrast, Electronic Arts generates 7.5 billion dollars in revenue with only 11,000 employees. This suggests that a private equity firm could theoretically achieve significant returns by streamlining operations and reducing the workforce. However, this strategy faces substantial hurdles, particularly due to French labor laws, which make large-scale layoffs complex and financially prohibitive.

Operational inefficiencies are further evidenced by the company’s development practices, such as utilizing 11 global studios to collaborate on a single mobile title. While the company possesses a portfolio of highly regarded intellectual properties, the current management structure appears unable to execute the necessary restructuring to improve profitability. Although the founding family retains significant control over voting shares, a partnership with a private equity firm may be the only viable path to correcting the company’s trajectory. Ultimately, while the potential for a turnaround exists, the risks associated with workforce retention, cultural integration, and the legal constraints of the French market remain significant barriers to a successful acquisition.