Keywords Studios' Red Hot acquisition swells video game art unit

Keywords Studios has spent $6m buying a China-based company that specialises in video game art production.

The acquisition of Red Hot CG, which will be paid with £4.35m cash up front, 0.16m shares after a year and $1m cash after three years, is expected to be earnings enhancing in the current year, with Keywords buying 100% of the Shanghai studio.

Red Hot, which was founded in 2010, will expand the capacity of Keywords' existing business in art service, a fast-growing and higher-margin market.

The Chinese company's clients include many of the game development studios of Activision as well as Sony, Bethesda, Tencent and Capcom.

Red Hot operates from a central hub in Shanghai with satellite studios in the lower-cost locations of Chengdu, Dalian and Zhengzhou in China plus Yogyakarta in Indonesia.

AIM-listed Keyword said the hub-and-spoke model gave Red Hot broad access to what is the largest video game art talent pool in the world, while maintaining control and providing international business access through Shanghai.

The 220 artists on Red Hot's books will add to Keywords' existing 900 artist employees and contractors.

In calendar 2016, the Red Hot businesses generated revenues of $5.4m and underlying pre-tax profit of $0.9m, with good growth said to be expected in 2017.

Broker FinnCap increased its current year earnings per share forecast by 2.3% and 2818 by 4.6%.