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Embracer Group acquires Dark Horse21 December 2021
Embracer acquiresDark HorseToday’s SpeakersMike RichardsonFounder & CEODark HorseNeil HankersonCOO of DHMDark HorseVanessa Todd-HolmesVP of P&SDark HorseLars WingeforsCEOEmbracer Group
About Dark HorseDark Horse Comics was founded in 1986 by MikeRichardson as an offshoot of his Oregon comic-bookretail chain, Things From Another World.Dark Horse is a leading entertainment companywith a vast content library. One of the largest comics publisher in the United States Dark Horse Intellectual Property performs well across allmediums. Critically acclaimed publications and live-action films, andanimated content Proven ability to develop and produce IP suitable formultiple distribution platforms (e.g., publishing, consumerproducts, film, television, and streaming) Leading creative team & external relationships thatcontinually fuel the Dark Horse content engineHQMilwaukie, Oregon181 FTE’s3
The Dark Horse Story“PORTLAND, OREGON NATIVE MIKE RICHARDSON ATTENDS PORTLAND STATE UNIVERSITY, STUDYING ART WHILE PLAYINGBASKETBALL WITH A CREDIT CARD LIMIT OF 2,500, MIKE CREATES PEGASUSBOOKS IN 1980 (LATER TFAW),WHICH WOULD EVENTUALLY GROWINTO ELEVEN STORES IN THREESTATES . 1994 THE MASKOPENS #1WORLDWIDE.NEXT #1 ISTIMECOP 2008. HELLBOY II:THE GOLDEN ARMYGROSSED 168MMWORLDWIDE IN 1986, MIKEESTABLISHES 2012. AVATAR: THELAST AIRBENDER BECAMENEW YORK TIMES #1BESTSELLER . DARKHORSE COMICS WONFIVE EISNER AWARDS .DARK HORSECOMICS IN 1988, MIKE MEETS FILMEXECUTIVES LARRY GORDON & LLOYDLEVIN, OPENING HIS EYES TO THEPOTENTIAL OF DARK HORSE STORIESON THE BIG SCREEN 2013 PARTNERSHIPWITH NINTENDOCREATED THE LEGEND OFZELDA, OVER 1MM COPIESSOLD OF LEGEND OFZELDA: HYRULEHISTORIA 2019 LAUNCHEDPARTNERSHIP WITHNETFLIX ANDUNIVERSAL TO RELEASETV SERIES THE UMBRELLAACADEMYI Where isDark HorseToday? THAT YEAR, MIKE FORMS ANEW VENTURE DARK HORSE PRODUCTIONS A FILM PRODUCTIONCOMPANY (DH ENTERTAINMENT)DARK HORSEREIGNS AS THELARGESTINDEPENDENTCOMICSPRODUCER!”“MIKE AND THE DARK HORSETEAM NOW LOOK TOCAPITALIZE ON MEDIA ANDFILM PRODUCTION TOEXPAND THEIR INNOVATIVEWORKS TO A GLOBALAUDIENCE ”2
Diverse Portfolio300 50030402.000 Properties and growingBooks published every yearNew comics each monthFilms & TV adaptations in pipelineNetwork of creative comic book professionalsIn a mix of owned, controlled and licensed IP5
Global Opportunity 1.3 BillonSize of US ComicMarket (2020)Greater than 1TrillionIntellectual propertyComics & GraphicNovelsFilm & TV & VideoGamesMerchandise,Retail &ExperienceGlobal Entertainment TAMExpand Customer Reach6
Strong Ties in the Games IndustryDark Horse is the go-to publisher for video games companies for comicsand merchandise such as art books. Working with leaders in thecategory with brands such as The Legend of Zelda, Minecraft, TheWitcher, Final Fantasy and Borderlands.7
Successful Publishing TitlesIntellectual property performs well across mediumsHellboyBerserkUsagiZeldaAvatarUmbrella AcademyOverwatchAlienLast of UsThe WitcherBlack HammerFalloutAmerican GodsHellsingWowB.P.R.DControlledOwnedExamples of IP Previously Exploited for Film/TV or Currently in Production/Set-Up3
Vast Content Library with Meaningful Opportunities forMonetizationPropertiesNumber of Titles% of TotalExploited for Film/TVFilm/TV RightsAvailable1Gaming 3614756Licensed:16426%231- Publishing Only159-211- Limited Rights3-022Public Domain91%099Total623100%46321225Current entertainment production pipeline is split 80/20 between Controlled and Owned IP Dark Horse’s IP library spansacross genres anddemographics Perfectly matches multi-genredemand from streamers andtraditional programmers Significant opportunity to scaleentertainment revenue: currently,less than 15% of Dark Horse’sexploitable IP is set up to producerevenue from video content leaving avaluable vault of over 300 titlesavailable for production1. Includes limited rights and rights under negotiation. Excludes expired rights (some are available for renewal).240 titles with merchandise rights Dark Horse’s is well positioned togrow its IP library to 1,000 titles –current near-term goal Creators choose Dark Horse for itsunmatched value proposition anda 35-year track record ofdeveloping iconic brands andfranchises4
Dark Horse Comics – What is the Mix of IP Sold?Top 5 Franchises by Print Publishing Sales 2015 – 2021 YTD2015A2016A2017A2018A2019A2020AYTD 7/21Avatar LastAirbenderWorld of WarcraftZeldaZeldaBerserkBerserkBerserkZeldaAvatar LastAirbenderOverwatchSuper MarioUmbrella AcademyAvatar LastAirbenderAvatar LastAirbenderPlants vs ZombiesHellboyBerserkWorld of WarcraftPlants vs. ZombiesUmbrella AcademyAvatarHellboyFight ClubWorld of WarcraftBerserkAvatar llboyHellboyCritical RoleZeldaSales Mix 2019A2020AYTD July 2021Within Publishing, the majority of top sellers are licensed titles which DarkHorse hand-picked as winning comics titles20,3%26,8%50,2%2018AInitial SalesFrontlist SalesBacklist sales (sales recorded after the first year of publication)increasingly greater % of total due to increasing digital salesBacklist Sales7
Dark Horse Comics – How are the Comics Sold?Titles Owned &Managed (72%)Dark Horse IP3rd Party Licensed Content forLibraryComics(28%)1TFAW, LLCTFAW.com (70%)TFAW stores (30%)Company-managed retaillocations specializing incomics and memorabilia% of DHM Sales YTD(7/31/21)213%Dark Horse Deluxe / ProductDevelopmentToys and merchandise sales viawholesale and direct to consumer9%1. Includes Public Domain.2. Remainder of revenue attributable to DHC Sales and Licensing (3%) and DHE (5%).DistributorsReputable publishingrelationships71%8
Dark Horse Comics – What is the eCommerce Strategy?( in millions)Dark Horse DirectDark Horse DigitalTFAW OnlineDark Horse Direct sells premium items andcollectibles direct-to-consumer Dark Horse Digital is a subsidiary of Dark HorseComics responsible for the publication of comicbooks in the digital format. It was establishedin 2011 10,1UmbrellaAcademy:SéanceMaquette Dark Horse Digital began as an online digital comicsstore and associated iOS app, with an Android appreleased in 2012 Strong momentum in digital comic sales. Spike in2020 due to Covid-19 brick-and-mortar closures, butgrowing sector overallIncrease in sales from 3.4mm to an estimatedrevenue of 6.7mm in 2024 5,42018The Witcher 3- Wild Hunt:GICLÉE PrintDark Horse Deluxe sells products to 3rdparty stores 5,4 3,42019(0.5%)202058.4%202120%2022202325%15% 2,3 2,320192020 se in comic book sales from 2.6mm to anestimated revenue of 10mm in 2025 6,8 4,3 3,4 6,5 5,0Dune:Sandworm BookendsDark Horse Deluxe 6,2 8,4202410%1. Includes all TFAW sales not just DHC sold through TFAW.The Last ofUs:Ellie withBow StatueThe Witcher 3: Wild Hunt:Geralt Grandmaster UrsineFigure Other items sold over the internet includecollectibles, toys and games and othermiscellaneous pieces Sales of collectibles are also expected to riseover time with a ’18 – ’21 CAGR of 22% and a’21 – ’24 CAGR of 26.6% Toys and Games also see a similar rise from95k in 2019 to 359k in 2025; resulting in a ’21– ’24 CAGR of 26.6%9
The Three Business UnitsDark Horse Comics The core business of DarkHorse is publishing comicsand graphics novels of bothown and licensed properties Hellboy and Star Wars,Japanese manga such asBerserk and Avatar The LastAirbender. Dark Horse is also a leader ingame art collections withbooks like the best seller –The Legend of Zelda:Hyrule HistoriaThings From Another WorldDark Horse Entertainment A retail concept offering a widerange of comics, graphicsnovels, toys, statues and otherpop-culture related collectibles,and a philosophy to offerexcellent customer service.A production company founded in1992, which has since producedover 40 films and series, includingthe #1 box office hits and criticallyacclaimed series: Founded in 1979 and consistsof three retail locations and awebsite for e-commerce. The Umbrella Academy (2ndmost viewed on Netflix) The Mask Timecop Hellboy13
Dark Horse EntertainmentUS-based production & development, but content consumed by global audience Core Business Film, TV & DigitalVideoSince 1992, Dark Horse has worked with leading studios &networks to produce 40 film and television series that haveaccumulated box office of over 1bn USDIn 2019, the Company shifted its focus to streaming platformsand subsequently signed a multi-year, multi-property first-lookdeal with Netflix, with opportunities to partner with otherplatforms (e.g., Universal, Viacom, etc.)Dark Horse sidentVPCreativeAffairs1Report1ReportDark Horse has a first-look deal with Netflix and has projects at Universal,Warner Bros, Paramount, Sony, Amazon, AMC as well as others and projectscurrently under consideration at nearly every studio and platformThe studio (e.g., Netflix) purchases the right to produce a Film/TV show basedon Dark Horse IP. The studio finances the production and owns the copyrightof that production – the studio exploits that copyright by licensing distributionand ancillary rightsIn general, Dark Horse is attached to any subsequent productions as aproducer and will earn producing fees and royalties/backend with a floor of thedeal on the original production. Certain ancillary rights are held back for DarkHorse to continue to exploitVPCreativeAffairsFor controlled IP entertainment rights deals with an independent creator aretypically structured as 50/50 share of IP rights fees. Producer fees (guaranteedfees) and any additional percentage of box office proceeds and bonuses godirectly to Dark Horse10
Why Do Creators ChooseDark Horse?Unmatched DistributionExtensive relationships across the entertainmentlandscape; strong US penetration with growinginternational fanbase.Transparency with CreatorsClear and fair compensation structure; adopted as theindustry standard .Creative ControlCommitment to the creator’s original vision acrossmediums.Track Record35 years of experience and success in an evolving medialandscape.15
Deal Structure and Acquistion RationaleAcquisition Rationale Strategic move into transmedia that adds expertise within publishing comics, production offilm and TV series. Big IP library and well-oiled pipeline: Dark Horse owns or controls a vast number ofproperties through their comic book publishing. This type of transmedia company fits perfectlywithin Embracer Group. 30 years in business: Diverse business with strong presence in comic books/graphic novelsand film/tv-series. Years of IP investment position Dark Horse to further monetize its libraryacross platforms in the near-to-long-term Games based on Dark Horse IP: Lot of untapped potential in bringing Dark Horse’sproperties to games. Represents a potential upside and synergies within EmbracerGroup. The companies are already working together. Dark Horse is a platform for the best content creators in the world. Perfect opportunity tomatch content creators with game developers Opportunity for transmedia collaboration – e.g. comics that supplement or pre-date releaseof major games or art books to be bundled with Embracer games as deluxe editions Greater access to film/TV for Embracer content – Dark Horse has relationships withstudios, talent and writers that can bring Embracer IP over to screen mediaTransaction terms and financialcontribution Net Sales 2021- SEK 900 million with SEK 130 million of operationalEbit. Forecasted to generate operational EBIT of SEK 140-180 inFY22/23 and SEK 170- 200 million in FY 23/24. This figures excludesany commercial synergies or planned M&A. 80% of the shares of Dark Horse are acquired from a seller based inHong Kong. Remaining 20% of shares will be acquired from founderand CEO, Mike Richardson and COO Neil Hankerson. Both arecommitted to stay with the company. Post transaction business willremain as usual and there is no planned restructuring.Purchase PriceDue to commercial reasons the specific transaction terms are not disclosed.The transaction will be accretive to adjusted earnings per share.Completion of TransactionThe transaction is subject to certain customary conditions, including mergercontrol approval, and is estimated to be completed by the end of January2022.Dark Horse will become the 10thoperative group as a subsidiary ofEmbracer Group16
Dark Horse becomes the 10th operating group of Embracer, continuing to operate independentlyCorporate structure post transactionTHE nKenRandyOlegRandyStéphaneMike17
The new combined Embracer GroupToday’sacquisitionsNew groupPost-closingPre-ClosingAsmodeeOp. Group81110Internal Studios86223111260 300 300860 9,000 2,300 850 12,150 IPsPeopleProposed acquisition of Asmodee announced 16th of DecIncludes all announced acquisitions of 21st of Dec18
The Witcher 3- Wild Hunt: GICLÉE Print Umbrella Academy: Séance Maquette The Last of Us: Ellie with Bow Statue Dark Horse Deluxe Dark Horse Deluxe sells products to 3rd party stores The Witcher 3: Wild Hunt: Geralt Grandmaster Ursine Figure 1. Includes all TFAW sales not just DHC sold thro
