Enad Global 7 AB (publ)

STO:EG7

Earnings Call Transcript 2020-Q3

[Robin Flodin, CEO & Director]

Welcome to this presentation of EG7's quarterly report and our latest acquisition of Piranha Games. My name is Robin Flodin. I am the CEO and Co-Founder of EG7. EG7 is aiming to become the world's greatest ecosystem for games companies in the world. We are all about acquiring companies, improving companies, actively finding synergies and making these game companies even greater than they were before we acquired them. The way we do this is through our service platform. With Petrol, the world's greatest marketing agency who already to date worked with some of the biggest companies in this industry, from Activision, Embracer, Ubisoft, Sony, Nintendo, to name a few, with Sold Out a publisher that is already, today, delivering titles around the globe for Team17, Rebellion and Frontier, but also, of course, on all digital platform. With a world-class developer network, with proprietary technology with a great amount of data, but already to date, having 2 million active monthly users, we have a great platform for developers to come into to join in the group, with their games, they're all of the revenue-generating IPs so that we can make them even greater. By adding all of these companies, we today control the entire value chain from concept to the hand of the consumer. We think that this is not only a fact that it's is key to become a great gaming group overall and has many strong benefits, it is also one of our greatest pitch to those companies that we acquire to bring into the group because they can see that if they plug into our ecosystem, they are going to be even more successful than they were before. With all of these companies added into the group, we now have a great track record of over 160 game releases, 25-plus games in our pipeline and over 40 marketing campaigns with the year so far behind us of great success but even more to come. Already, in 2020, we've had some great releases through our partners, games like Zombie Army 4, Moving Out, but not only that, of course, Sales & Marketing and also No Straight Roads delivered on the digital side and profitable even before launch. I'm super excited because we have a great amount of first-party releases coming out everything from I.G.I. to IP that we acquired and then put into the studio that we acquire Antimatter Games really merging together some of the values and synergies that we see. With Block'n'Load, a very exciting sequel to the first great game of 4 million plus downloads, we have some super exciting things coming out, and I cannot wait to get both investors to have a chance to play it and gamers. From a company of SEK 11 million in yearly revenue to today, over SEK 800 million, we've added some great companies into our group, but also seeing some amazing organic growth. We're really excited about continuing this journey of adding companies into the group and continuing to build the growth of these already growing companies. At the heart of EG7 is our M&A strategy. We are a buy-and-build story. We acquire companies, adding them into the group and finding synergies, helping the entrepreneur scale and improve their business from where they sit today as already successful companies. We think that we've already proven that we have a great track record and some great prices and adding some amazing companies into the group. And this is what we're going to keep doing going into the future as we keep adding new companies into the group, finding synergies and improving the greater and broader business. We see that this really adds a lot of shareholder value, diversifies our revenue and produces a stable and constantly growing group with new IP, with more games and with more entrepreneurs with great knowledge. And we are super happy and lucky that we've had so many great entrepreneurs wanting to join our group. Those who truly taken about half of all of the upfront in shares. And this is because they truly believe in our story and our vision about why we have a unique way of approaching this market. Now the latest acquisition, Piranha Games, we're going to listen to a few words from the CEO, Russ Bullock.

[Russ Bullock]

I am Russ Bullock, CEO of Piranha Games. I started Piranha Games in January of 2000, which makes it almost 21 years ago, right here in Vancouver where it's founded. Our grade came in about 2011. Very fortunate to establish a license for MechWarrior, which was really a child of dream of mine to work on that brand and we started to work with that in 2011, and that led to us developing MechWarrior Online. So Piranha Games really is -- was on the forefront, especially in North America of -- we're working on the premium side and premium featured free-to-play type. So that gives our studio over 9 years of games service -- live services, free-to-play game development experiences, but also what makes a game great? What makes a game niche? What are the strengths and weaknesses? And so really finding that perfect balance between what our strengths as a developer, but also our learnings on what makes that good game. So we're excited to be working on new [indiscernible]. No announcements yet on release dates, but we're going to be balancing -- finding that great balance between working and servicing MechWarrior and developing this new IP. And this is really where it comes in and why I was so excited to be partnering with someone like EG7 after being independent for 21 years and seeing where the industry is going. The last couple of years, in particular, as we were finishing MechWarrior 5, it became more clear that it was really going to be important for us to partner with somebody that could provide more support. Nowadays, it takes more and more resources than ever to develop great product and get it to market and have it stand out. So in particular, with the marketing and publishing support that we have received, really feel like that will give us a good chance of making the next big hit live services product.

[Robin Flodin, CEO & Director]

Thank you for that great presentation, Russ. Now let's get into the details. We are doing this transaction at an upfront multiple of less than 4x EBITDA. A big part of the rationale for this acquisition is, I think, to anyone following this industry, quite obvious, it's a great company. They have games today that are running and generating revenue. They are a profitable business with a team that has 20-years of experience. To us, adding in both the games that they're running to date and adding to our portfolio and being able to work with this team to further improve both the revenue today and also the new launches as this is another company known for the PC brand that are now transitioning into console where we can add a lot of value through our service platform, Sold Out in the publishing side and Petrol in the marketing side. And we believe that this is really going to create a lot of shareholder value. MechWarrior is a franchise that has stood the test of time. It's been popular with fans for decades. And now we have 2 games, one that is already live and one that is getting its full release shortly. First is the MechWarrior Online, a free-to-play game that gives a great team that is already operating a profitable game that we can take the experiences from when we look at things like EvilvEvil. Then we have MechWarrior 5, a single player, co-op game that you can play as a MechWarrior that many of the fans have been waiting on for a very long time. It's had it early release on Epic Games Store, but now with the full updates and everything ready to launch on PC and console globally. We think it's important to highlight the fact that we keep adding great IP into the group. You can see this from everything from new games like Evil and '83 or solid IP that is today generating revenue like MechWarrior Online and My Singing Monsters or potentially in the portfolio like MechWarrior 5, I.G.I. and others. With a team of 20-years of experience and $70 million plus in revenue, I think the 10,000 daily active user in that game and many synergies truly show why this is a great acquisition. Here at EG7, we always think that 1 plus 1 should equal 3. I think the Piranha Games truly show this philosophy in action. It's a company that has all the trademarks that we are looking for to bring into the group and add value with the core philosophies of seeing that they have a community that's super responsive to the products and IP that they have but also with many ways that we can increase the profitability and see synergies between the different elements of our group. Me as the CEO and our team is super excited to welcome Piranha Games into EG7. At EG7, we're dividing our business into 2 divisions. The service division is there really to create diversified and stable revenue that we can plug into our games and IP, but also to have that support platform that we've been talking about. And as you can see, we're constantly growing our games in IP part, and this is really our goal through our latest acquisition focus. This is something even more exciting, and this really makes the service platform even more useful as more games and IP is added on to our games and IP division side and the revenue keeps growing and the margins will get higher. Games are sold all around the world. And so we are constantly adding offices from games companies that are successful globally all around the world. We have a headquarter in Stockholm, but we really see that we are a global company. We think that this is super important to learn from these territories and regions for people like in these specific places of the world, and we think that this makes us stronger as a group. But it also reaches more companies that would want to come and be part of the group as we enter more locations. During the quarter, we've had a healthy net revenue growth, but more importantly, we raised SEK 429 million to give us a lot of dry powder to do exciting acquisitions like Big Blue Bubble and Piranha Games. We really worked on our efficiency internally. For example, in our M&A team, we now can both integrate and do M&A deals at the same time with great efficiency. We also have opened even more talks on the M&A side than ever before, and we see that something like Piranha Games is just the beginning of some exciting conversation that we're having. So what can you expect next from EG7? We're going to do more M&A of great companies and entrepreneurs coming into the group. We're going to release our portfolio of games, really showing how these services and platform is working to improve the quality of these releases and the profitability of these releases, but also add more games into our portfolio and completing our ecosystem step-by-step every day, making it more and better. We really believe that aligning incentives is a key driver of success.Management and Board owns 53% of the share. So we truly win together with all of those who invest. We've also seen some great institution believing and supporting our story, and we are truly grateful. I really hope that this presentation has given you some great reasons to invest in EG7. At least I am super excited about bringing all of the news to the market, bringing these games to market, adding new entrepreneurs, and seeing how this company can be even larger, even better and even stronger going forward. To everyone out there, thank you very much.

[Fredrik Olsson, Analyst]

Good morning, ladies and gentlemen, and very welcome to this live Q&A session with EG7. I am Fredrik Olsson, analyst from Handelsbanken, and I'm here to moderate today's session. I'd like to remind everyone listening in that if you have a question, you can do -- you can e-mail it to IR at enadglobal7.com, and I'll ask it for you. I'm standing here with no other than the CEO and Co-Founder of Enad Global 7, Robin Flodin, after just reporting the third quarter. How are you doing?

[Robin Flodin, CEO & Director]

I'm doing great, and good morning to you, and good morning to everyone who is listening in today.

[Fredrik Olsson, Analyst]

Today's report is surely an interesting one, both operationally as well as the acquisition of Piranha Games. So there is much to discuss surely. So let's kick off with a couple of general questions. The ongoing pandemic has surely impacted the industry as a whole on many levels. But I get the sense that per company, it looks rather differently. Could you give some indication on where you, as a company act within the work-from-home model? Has it impacted your creativity, your productivity? And what's your view of this going forward?

[Robin Flodin, CEO & Director]

Yes. So I think in many ways, we can see that this has impacted the entire world. And I want to start by stressing, we are very happy about the vaccines. Our families and developers also need to live in society that is doing well for it to work. And I actually feel very positive, even though people will maybe be less at home during this, I think what we're going to see is that we have moved forward in time in terms of people coming into games. So a lot more people have tried games now, and we can see that in the data that there is a lot of new users and those, I think, will stick with gaming because they've tried it for the first time and see how amazing it is. But on a general scale, I'm very bullish on the future of gaming. Cohorts are growing as people who play games are getting older and so on. For us personally as a company, we have had both a little bit down, a little bit up, and it's been quite neutral. And that's because physically we are slightly down. Marketing has been pushed because many projects -- big projects have been pushed and now digital has been up. So for us, it's sort of out in the wash.

[Fredrik Olsson, Analyst]

Yes. And you touched upon the consumer behavior here during COVID-19 within gaming. Can I ask you in terms of the data gathered during the quarter, have you seen any differences sequentially in terms of engagement from the clients?

[Robin Flodin, CEO & Director]

Yes. So -- for sure, I think we definitely see that gamers are playing more. But like I said, on the other side, people are buying less in stores a little bit, right? Still buying in stores, which is amazing. And then of course, we also seen that because of projects pushed, there wasn't that many launches this year as usually as many developers are just managing all of their incoming into the live games. But clearly, there's been a lot more playing. That's sure.

[Fredrik Olsson, Analyst]

All right. So Q3 is over. If you were to only pick one thing to highlight, what would it be?

[Robin Flodin, CEO & Director]

Only one thing to highlight, then I would say the acquisition of Big Blue Bubble. If I would forget too, it would be raising SEK 429 million and really building our warships for acquisitions like Piranha.

[Fredrik Olsson, Analyst]

Fantastic. And looking year-to-date, which has been your most important game release as a group?

[Robin Flodin, CEO & Director]

Year-to-date, I would say that No Straight Roads has been the one in terms of quarter 3. In years, it'll be in Zombie Army.

[Fredrik Olsson, Analyst]

And going into next year now, I mean, it's time for your pipeline to blow, so to say. Is there any title, in particular, that you would like to highlight here saying which titles are you most excited about?

[Robin Flodin, CEO & Director]

Yes. So I think it's very important to us to understand that we have a portfolio. And in this portfolio, we really see that the different games have different purposes. Some like '83 or Block'n'Load, which are basically spiritual successors to previous games in the franchise or direct successors are more safe bets in our opinion. And then we have EvilvEvil, which has a very high potential. So I'm very excited about all our games, I have to say, but for different reasons.

[Fredrik Olsson, Analyst]

And as mentioned, these are busy years in terms of game releases. How do you feel about the development as it is right now? And what do you consider to be the key risks in the coming 2 years?

[Robin Flodin, CEO & Director]

I think if we look at our development, we have been very lucky in the way that we -- from the beginning, we've always had an approach of having people be able to work from home. So we have a very strong system setup. So on the development, we haven't been very much affected. We are -- everything is progressing really well, and we're very happy about how things are looking on the development side. Of course, I think the key risks are always the games launches, right? It's always hard. The game launching is hard, and that's always the biggest risk, I think, for us. The good side, though, is when we add more companies like Big Blue Bubble, we're adding revenue that are constant, back-catalog that are growing, reducers and consumers that are more like a SaaS model. And so on with MechWarrior Online that is from Piranha Games. So the more we add that into the portfolio, the lower the risks are.

[Fredrik Olsson, Analyst]

And touching up on the risks in that sense. Let's talk about exclusivity launches as it is a way to minimize the risk of release, yes, yet it can kind of strangle the full potential of a game in the sense. So looking at the more major releases such as I.G.I. and '83, maybe not EvilvEvil versus as it is a free-to-play game. But is this something we should expect from you going forward?

[Robin Flodin, CEO & Director]

So we always try to balance the different options that we have and try to make as reasonable with the current situation. And what I mean, it might seem a little bit that I'm not giving an answer, and that's because we don't know yet. We're looking at the products. We're looking at opportunities. And then we're seeing how the rest of cash flows and profits are looking. And that really determines if we're derisking projects or are we going to go and look at that -- only that side. So -- and I think that any reasonable person will do that to first make sure that the risk is not too big, but then also make sure you're not losing it.

[Fredrik Olsson, Analyst]

And the mix between PC, console and mobile going forward, how do you see that evolve into the future with your pipeline releasing now?

[Robin Flodin, CEO & Director]

Yes. So I think from our perspective, we are looking to have increased amount of titles in both PC, console and mobile. What I think is very exciting is that now there's a new console generation that's going to push more consumers into that. Of course, people have been proclaiming that this has been dealt for 15 years -- still not dealt, still growing. So I think, generally, all areas are growing and what we are focused on is companies who have great consumer demand in different areas and then what platform isn't so important today.

[Fredrik Olsson, Analyst]

And if we dig deeper into M&A, I'm going to come back to Piranha Games. But your journey so far has surely been impressive, and there is no assumption of you slowing down just yet. So could we touch upon the M&A -- what the M&A pipeline looks like? Any specific segment to enter that can align the group better or support the group given the sort of ongoing changes we're seeing in the overall market?

[Robin Flodin, CEO & Director]

Yes. So of course, I think what we're looking at is always, what are the things that fit into the group? And I will say, in our view, when we think about what kind of acquisition it is, I mean, right now, games and IP, profitable company and is this something we're specifically looking at, but also games that fit well into, in some way, adding or enhancing the rest of the parts of the group. It's everything from, like I said, can we add more constantly generating games so that we can lower the risk and have the cash flow even better for investment into releases -- of new releases because you have to be between both having a back-catalog of games that are generating profits. And then, of course, also have new releases that can drive a further upside and even in greater potential while you're still growing the games. If you look at something like My Singing Monsters, you still have a 30% growth year-over-year. So we're still gaining on those titles as well, and then we can add incredible upside of at least if some something like Evil will be super successful, right, then it's even better. And then -- so we're looking at what companies, in this case, touching a little bit on Piranha, but with a free-to-play experience. Now we're adding both free-to-play being from the mobile, but now also free-to-play experience on the PC. All of that combining into the group PC is just adding more experience within this very important segment that are growing in the gaming space. And then also we're getting releases with the full release of MechWarrior 5 coming out next year on console and PC.

[Fredrik Olsson, Analyst]

Yes. And well, coming back to Piranha Games then. You touched upon the rationale. But are there any synergies to be found within the already announced pipeline from you guys? Can they support with EvilvEvil in some sense?

[Robin Flodin, CEO & Director]

Yes. And that's a great question. And that's, of course, what we are aiming to do. So we -- I mean, Piranha Games, I can't stress -- I'm super excited.The team, one of the oldest teams in Canada when it comes to independent companies, great track record of AAA, have been working very long time and really knows all of things. And then the success of MechWarrior Online, which has generated USD 60 million revenue, bringing them [ Audio Gap ] experiences to something like EvilvEvil, I mean [indiscernible], I think.

[Fredrik Olsson, Analyst]

Could you perhaps dig a little bit more into the structure of the deal, cash, share base, et cetera?

[Robin Flodin, CEO & Director]

Yes. So the deal is divided between cash and shares and in the upfront multiple, as you might know from the morning, it's 3.7x, which we're very happy about. This has left us with a 5% dilution for shareholders and adding 60% EBITDA. So I mean it's an amazing deal. And the reason we've been able to do such an amazing deal is because this team truly believes in the upside, what they can do with the group, seeing the potential of something like Petrol and Sold Out because that's stuff that they've been missing as they've been independent for a while.And then, like I said, then part of it is paid in shares. So even so on the upfront, we still have SEK 300 million in cash left from the raise. Even after a Big Blue Bubble and Piranha Games. So generally, very exciting. And then we have an earn-out structure over 5 years. That's a CAD 60 million. That will be divided over the years. Basically, if they have a great performance, and we really like this because this gives a lot of incentive to grow the company.

[Fredrik Olsson, Analyst]

And given that M&A is surely a part of your DNA going forward, could you dig a bit -- I mean, I want to know what does your M&A team look like? How involved are you in the processes of screening these companies and finding these companies, if you could elaborate a bit on that?

[Robin Flodin, CEO & Director]

Yes. So part of our M&A is, of course, very secret to us because it's our trade secret. But we divide between financial people in M&A and then also, of course, with the gaming people with a very long track record in the game industry and big networks. And then simply, we source -- there's a big huge pipeline coming in. And of course, I look at everything that goes through the first stages of that sort of pipeline. And I'm with the process talking to the people that potentially come into group always every one -- every single one of them. So I'm very involved. And I think it's very important because they're going to be part of the group. If I don't know them, if they don't feel that they have confidence in the as part of the CEO of the group, that's not going to work. So -- and I think that this has been an edge for us. We've seen that in a market that we have a very good response that I always show up and talk to everyone we intend to acquire.

[Fredrik Olsson, Analyst]

And touching upon the integration, I mean, how do you integrate and acquired company successfully? And could we touch upon the integration process of Big Blue Bubble perhaps? How has that gone? Any surprises on the negative or any possible hidden values found?

[Robin Flodin, CEO & Director]

Yes. So I think what's really excited about Big Blue Bubble is really -- I would say, no, to be honest, when we did our first integration or something like Petrol. It wasn't as clean and as perfect as I would have liked it, right? It went really well, eventually. But initially, it wasn't really that. But at this point, we've really perfected a lot of our integration strategy. We have an integration team. We have a very strong planning on that. And that has worked extremely well with Big Blue Bubble, and we talked to the team, and they're very excited, and we feel that we've created all of the connections and all the things we wanted very early instead of just from the announcement, we prepared everything and was very much ready for the closing, but already integrated and worked through everything. So I have to say that now with Piranha, we're very -- we're exciting that we're going to be able to bring that even further and we even tighter this time. So -- and that's always how we work.

[Fredrik Olsson, Analyst]

I really want to know how do you pitch the EG7 group to potential M&A target? I mean, why the companies want to join you, in a sense?

[Robin Flodin, CEO & Director]

I think a big part of the -- the positive side that we have when we do our M&A is my background as a developer. I really understand developers. I can really get to the heart of how they think and that's why we have also won processes where we've not been the highest bidder. I take a lot of care into our team in to understanding the company, understanding the future they want to build and making sure that, that's the focus of how can we help you become more successful in the way where we're not going in and destroying the company in any way. We're not going to change just go and destroy the value. But we're also not the kind of company that just adds a lot of businesses into the group and then moves on. We're very much taking care to everyone we add to work with them to improve their business models to help using experience to share with the founders. And this has really worked with both for the fact that we can have all of the founders that are in the group that are very excited. And part of this has really been excited when they come in, that they can talk together, that we created a founder's club, and this has really also been an ability for us to push forward founders that has joined the group to also talk to potential targets, and that has been very good.

[Fredrik Olsson, Analyst]

And other compounders in the fragmented market have recently acquired many targets at the same time. What is your plan here? Are you looking to scale across the entire spare? The entire gaming there? Are you looking to be more selective with specific genres, platforms or others in terms of deepening into specific niches?

[Robin Flodin, CEO & Director]

Yes. So we're definitely -- I don't think we will ever do a set of multiples of too many transactions, the one with sums seems very tough to manage and -- but I think our view is really strategically picking. And that doesn't mean we want to several in the period. But it has to be focused, and it has to be because those companies is actually the ones who want to fill our purpose. So I would say we're definitely more direct and more selective in our process. And we say no to a lot of different possible acquisition we've had on the table because we don't think it fits our strategy. So I think that that's what should you expect from us is several more, but more targeted, directed and maybe not a huge amount in advance because we just don't see that value, at least not how we look at it today.

[Fredrik Olsson, Analyst]

Yes. I want to continue on that track as you said you were stepping away from a couple of discussions. So just briefly touching upon the general price tag in the market in terms of M&A. The positive impact from COVID-19 must have affected it, at least I think. Has it become increasingly difficult to deal directly with entrepreneurs with the hiking interest of the overall market, meaning that the number of discussions that EG7 is stepping away from, has that gone up? What I'm trying to get at is we know that the market is fragmented, but is it as M&A fertile as it once was?

[Robin Flodin, CEO & Director]

Yes, I would say, definitely, it's -- it is very fertile, it's a lot of companies. But I mean, we say that to the people that come into the group, if we think that they have been majorly impacted by COVID. We say, I mean, this is a short-term effect. This is what we think our baseline business is, and then we'll do the deal there. Because at the end of the day, we are also looking very much at the earn-out structures and that's going to be after COVID. So at that point, we have to make a deal where there is a great upside in the future. On the question of if we see that prices are, I wouldn't say that there's a crazy amount of price building what we have seen on the other hand, but this was before as well is that there's some hip -- I just call them in and out there. So there are some companies that seems to run in and out of M&A for like a short while, and they just do crazy prices running and then they disappear from the scene. Generally, the ones that are there all the time are very reasonable. They understand that I think that there's no value to just keep bidding our prices endlessly. So some changes in prices, sure, but on the other hole, a lot of opportunities. We really don't see that our ability to tell the companies that what we can do has any limitations, and we usually set our price based on what we think they're valued at.

[Fredrik Olsson, Analyst]

Very interesting. And the last couple of years are characterized by high-growth and it seems like the coming ones will be as well. How do you prepare the company internally to becoming even larger because scaling, it all sounds fun and games, but sure, there are preparations that needs to be done?

[Robin Flodin, CEO & Director]

Yes, for sure. But generally, we've also seen -- we also -- on one side, we're growing our management team with experienced people, and that's helped a lot. But then on the other side, we're also getting a lot of positive effects. We can do deals throughout the group towards license holders and so on to get much better deals. And that makes -- I would say -- we will see a positive effect going forward on that on the broader scale and then getting experienced people in, we don't really see a problem of integration.

[Unknown Analyst]

All right. I have a couple of questions coming in here through the e-mail. Where will EG7 stand in 3 years' time?

[Robin Flodin, CEO & Director]

That's a great question. And I think, in my view, I hope that we will be one of the greater gaming companies in the world. I mean, that's what we're aiming for. We're striving for every day. Have a -- we've launched these titles that we have in '21, '22. We have several new great companies that have joined the group. And together with stand as, hopefully, an example of the way you can do it right. Both integrating companies and then enhancing their values.

[Fredrik Olsson, Analyst]

And another question. Antimatter Games was acquired at a multiple of 0.3x. How likely is it to find another such opportunity? Was it a once-in-a-lifetime opportunity?

[Robin Flodin, CEO & Director]

Yes. So I mean, I think that's a very good question. I think that the opportunity to do really good deals, that is always there. There are always in the gaming space, there are companies that exist in that sort of, I would say, in the strange vacuum where -- but if it's going to be exactly 0.3x, I mean, that's impossible to say.

[Fredrik Olsson, Analyst]

All right. Coming back to some general question. I wanted to discuss the sort of AAA development in general and what your current view is, I mean, price points and the opportunities you see from it, it's becoming more challenging in terms of development. Price elasticity has not really kept up, but now we're seeing price hikes in the market. So what has that meant for you as a company and your pricing strategy in terms of A, AA and indie titles? Has that changed somewhat going forward? Surely per hour, this is still very cheap entertainment, but still?

[Robin Flodin, CEO & Director]

I really don't see that it's at least currently changing our pricing strategy at a broader scale. We'll follow the market and see what's going on. But I think that what we see is that we really see that there's a lot more consumers and reaching a lot of consumers and then adding the inciting content above and then, of course, our free-to-play games is a much more interesting model than to take high upfront cost with some specific games. We might do that and follow that what is the current market and what the stores are expecting, if it's in the stores and so on. But on the general whole, I think we see the potential of keeping prices that are very good to get a lot of consumers in. So I would say it's positive for us that AAA is choosing to move up in the scale again from a pricing perspective.

[Fredrik Olsson, Analyst]

All right. Looking at the coming EvilvEvil game, I'm really looking forward to it. Why have you chosen to monetize from the game in a free-to-play manner? What characteristics are needed for a free-to-play game?

[Robin Flodin, CEO & Director]

Yes. I think this is, in many ways, this is a huge and emerging, especially in PC console. There haven't been that many yet. And I think one thing that we've seen is that there's been sort of a mismatch sometimes between the experience of AAA developers and what you need for something like a free-to-play game. You need to be able to produce content very quickly. And if you're imagine, Destiny or something like that, it takes too long time, generally to produce that content because it's so high quality.And it's about finding that balance, and we think that we found a really good way to produce content faster than anyone else. We'll see when it launches. But some of the things that we've really been working on is actually our pipeline so that we can deliver content into this game on a weekly basis. And that's quite unique. And the technology for that is proprietary to us. So that's something we're super excited about. And with that, I think we can really produce content to create a lot of retention and retention is the key driver for monetization effectively.

[Fredrik Olsson, Analyst]

All right. We have another question from the audience. How do you see the mix between physical and digital for your publishing division in the future?

[Robin Flodin, CEO & Director]

So we are -- we -- as we've stated already this year, we've been improving our digital side in our publishing division, and we will keep doing so. So we're looking at next year, we're going to see even more revenue coming in on the digital side.So -- but that doesn't mean we don't see a lot of potential of physical. And what I always say is, let's say, like the year we had Jurassic World, for example, that is a huge spike because of the great sales so that might change it a little bit. If we get some -- to date unknown titles coming in, but on a trend, we're going to see more digital in the growth, maybe 40%, 50% and so on.

[Fredrik Olsson, Analyst]

All right. Touching a bit upon the Big Blue Bubble. Can we talk about the strategy of moving away from iOS and Android back into console? What are the advantages of that move, the rationale behind it?

[Robin Flodin, CEO & Director]

I think for the team at Big Blue Bubble, they had a history in console. They're also having mobile. And they're driven by what they can also move IT and stuff that they're doing between the different platforms and I think that there are some great opportunities in there. And I mean, there's a little bit of an early trial with something like forgone that is sort of the first sort of feeling out in the market after being a very long time in the mobile space. But there are more to come. And at least what we know about it, we're very excited about the opportunities and how that also can grow into the group, and we can help them with that.

[Fredrik Olsson, Analyst]

All right. And I mean, given the focus of internal game development, which is set to give you significant margin expansion ahead, how does that change the consultancy business? Are you looking to use more of that internally? Or will we continue to see consultancy as a large share of the service segment going forward?

[Robin Flodin, CEO & Director]

So I mean today, of course, with something like Petrol, we're going to keep doing a lot of services, but it also depends -- it depends on if we add more companies in that segment. And also depends on if we see that the value is pushing more into our own games, we will. And I think it makes a lot of sense because if, let's say, we can get a $1 million contract for Petrol on -- from some publisher or we can invest some money and get out $5 million from our own games in profit. I mean, why wouldn't we do that? Right? So it's going to be on a slowly basis depending on the success and the trajectory. I think we're going to see that we are investing more on the game side, but we also see a lot of opportunities in growing, and we see growing in work for-hire and in that side as well. So -- and that's -- I think it also keeps us on our game and it has a lot of other benefits. So that's super great.

[Fredrik Olsson, Analyst]

As you touched upon one of the whole topics in the quarter, you recently raised SEK 429 million, I assume the majority of which will use for M&A. You have the mandates? Do you see the need for additional capital raises in the near future?

[Robin Flodin, CEO & Director]

So I mean, if we find a great acquisition or some reason to use that mandate. I mean, I think there's also something in the market we do it all the time. When we fill the mandate, we create a new mandate so that we can fill it on one reason is, for example, now we're paying shares to be Big Blue Bubble and Piranha, right?So we needed to have -- as we tapped all of our mandate for the race, we wouldn't be able to do the deals. So it's very good that we have this mandate, not only for raising capital, but very much for giving shares as well. So we have both cash and shares. And that adds double the amount of potential. So it is SEK 300 million cash left from the race. There's also a lot of now potential in shares to do even bigger transactions on -- and you can count yourself much of it.

[Fredrik Olsson, Analyst]

Yes. And another hot topic is the K3 accounting standard. How high are depreciations to goodwill each quarter? What would the effect be if you were to change to IFRS? And is that the plan, perhaps?

[Robin Flodin, CEO & Director]

So I can't comment on whether it's planned or not, but I can say that we have some great experts recently hired in IFRS into the company. So we have the knowledge in-house to do it if we would like to. But the effect is SEK 22 million each quarter. Historically, of course, [indiscernible] Piranha and the Big Blue Bubble starts adding into our goodwill. So that's how it looks right now.

[Fredrik Olsson, Analyst]

All right. Another question from the audience, which game releases should we look out for during Q4 2020?

[Robin Flodin, CEO & Director]

So something that's -- 2 really big titles for us is Planet Coaster and EverQuest, and we are very much looking forward to Q4. So let's just end with that.

[Fredrik Olsson, Analyst]

That's a good answer. And to follow-up a bit on the M&A side, but more service-related. During 2019, you built a strong base within the service segment with the addition of Petrol and Sold Out, adding a marketing and distribution business to the group. Are there any other service segments that you would like to add to the group going forward? Is there room for more? And could they actually boost group margins through better alignment, so to speak, and synergies?

[Robin Flodin, CEO & Director]

Yes. So we definitely see that there's potential to add more. We feel that we've added the pieces need that are required for our platform, but that doesn't mean we don't see a lot of improvement opportunities. And so I would expect that we add things in that segment as well over time. But our focus right now is really adding more games and revenue from those and IP. So that's what I see in the sort of future.

[Fredrik Olsson, Analyst]

Excellent. And could I ask you just a short question? What is the advantage of -- so you can explain to the audience, what is the advantage of owning the entire value chain from development to publishing?

[Robin Flodin, CEO & Director]

I think there are many things. One side is that it's all aligned under one-incentive structure. Everyone wins together. I think that's very important. But then it's also the resources and the knowledge internally to actually push through and understand the market in a way that otherwise, we're sitting with no knowledge, let's say, you use a publisher externally. You can do that, and that can be great sometimes. So I'm not saying we will never do that for any of our businesses if we think it makes sense. But you can be 1 out of 10 games that they are publishing, you have no idea what they're going to do with that game. If you own it, you have much more control over the ability to generate profits, the way to work with it, and you also have the control over the consumer in the end because that's going to be on the publisher side. So having all of these elements go together, not only do we get a much broader view into the market, but we also have the ability to own the consumer. And I think that have them in our -- together with us, with our games and our publisher unit and our communities so I think that's -- it just creates a much stronger group in the video game space.

[Fredrik Olsson, Analyst]

All right. We have one final question here. What can an investor expect from EG7 going forward?

[Robin Flodin, CEO & Director]

I think what you should expect is that we look at doing more M&A transactions in the future. We will keep adding to the performance of the group. And you will also expect us to release a bunch of really great games, '21 and '22 that, I mean, making -- in my opinion, making the year extremely exciting.

[Fredrik Olsson, Analyst]

Fantastic. Very well. Thank you very much for the presentation. And well, as well as answering all of my questions as well as the audience, you've given me a lot of work to do today and I'm really looking forward to it. Perhaps you would like to leave us with some final remarks before we end for the day?

[Robin Flodin, CEO & Director]

Yes. I just want to -- actually, I just want to thank everyone, all of the investors and our team for all the great work. I mean, especially something like Piranha that we announced this morning, the deal making, I mean, 5% dilution, 60% EBITDA. It's such a great deal, with such a great team, and I'm just stunned about the hard work that the team has put in. Thank you very much, everyone, for listening.