Keywords Studios’ Andrew Day on playing the game of growth
Video game services chief on the strategy that’s made it the industry’s go-to provider
NINTENDO, Sega, EA, Warner Bros – all household names that operate in the gaming and entertainment space. And all of them – along with many others in the sector – are connected to Irish company Keywords Studios, a service provider to the industry.
There is a quiet sense of self-assurance from Andrew Day, the South African-born head of Keywords, who describes himself as a “DIYer” when he is not working.
His softly spoken manner – having moved from South Africa to the UK at 15 with his family, small traces of an accent remain – almost serves to downplay an ambition that has seen his plan for Keywords fall exactly into place.
The company has gone from reporting revenues of €16m in 2013, when it listed on the London Stock Exchange, to €326.5m in 2019. Further growth is something Day expects over the next five years.
“If you look at the business now, on an annualised basis, our revenues [are] north of $500m. Where I think [we will be] in five years’ time, I’d be surprised if we’re not a billion dollars plus in revenue,” he says.
The Dublin-headquartered company will remain “highly focused on the video games industry, but we will probably be doing a bit more in some neighbouring verticals like film and television, for instance, where there’s an increasing convergence between film, TV and games. You know, what we do in games is very sought-after in some other areas”.
“I think the mastery of what is an incredibly complex product – video games with this mash-up between the most creative form of content and the most technical, the software platform that goes with it – if you can master that, then there’s so many other things that we as a business can do. And in fact, as more and more content types try to make themselves more interactive, it sort of drives demand in our direction,” Day explains.
Keywords has went from 50 people in Dublin in 2009 to today employing around 9,000 people across 65 facilities in 21 countries. Acquisitions have been a huge part of its growth story and last year alone the company purchased seven companies after raising the €110m in a placing.
The incredible pace of growth has not surprised the father-of-two. As he explains: “I think that’s the thing people often say, ‘are you surprised when you look back, are you surprised [where] you’ve got to?’ Frankly, the answer is no because all we’ve done is pursued exactly the strategy we put in place in 2009. We’ve not changed it, and what I think is surprising is that as any business, you know, certainly any other business I’ve ever been involved in, you write a fiveyear plan, and then you change it a year later as you failed to meet some of those objectives.
“Well, we’ve not had to rewrite our plan, and nor have we failed to tick off our annual objectives, so all of that is good,” he says.
Day joined the company – having been approached by his friend, Keywords co-founder Giorgio Guastalla, on the basis that he wanted to “take the business somewhere”.
“We put in place a strategy in 2009 to do just that, and essentially it went something along the lines of: ‘we see ourselves as a very small, very important supplier to the video games industry and when we look around us, we see lots of companies like Keywords, very small, offering single services in single geographies. And yet our clients are Microsoft, Sony, Nintendo, Electronic Arts, Activision, multi-billion-dollar global companies’ and we said: ‘this is nuts, where else do you see an industry at this scale that has such a fragmented supply chain?’,” Day explains.
He saw an opportunity for consolidation in the sector. This consolidation, he felt, had to come in the supply side of the industry.
“After a while of looking around, and seeing that nobody else seemed to have this in mind, we decided we would try and set ourselves up to be in a position to lead a consolidation, which is exactly what we did.”
Following its initial public offering (IPO) in 2013, Keywords has since completed three capital raises, including one for £100m last year.
“They’ve always been very well supported and they’ve always been on the basis of look, you know, we don’t have one big acquisition here that we can pin this against, we’re going to be raising money with the intent of spending it on acquisitions, we are very acquisitive.
“And you can be sure that every year we’re going to be doing acquisitions, and so our shareholders have been very supportive,” Day says.
With a number of companies last year raising funds to shore up their balance sheets, Keywords was in the fortunate position of being able to raise money to help it buy other firms.
There is, according to Day, money in the capital markets at the moment “for the right companies”.
“I mean, I think my sense – and I’m not a financial guru by any means – but my sense is that there’s a lot of money in the system and it’s all looking for good homes, and the good homes are a bit hard to find, obviously,” he says.
“So you get a lot of money, concentrating around a number of sectors that seem to be doing better than others given the challenges of Covid, and video games is definitely one of those sectors that seems to be doing well.”
With Day having stuck to his plan for the company, its M&A policy is, unsurprisingly, carefully thought out across its lines of business.
“Our acquisitions are really informed by the strategy that we’re perusing for each of our seven service lines,” he says.
“When we get those service lines to the point where they are, what we call the ‘go-to’ provider, which in our minds means that we would be the first name on the lips of our clients when they’re thinking about outsourcing services. When we get them to that point, we don’t continue making acquisitions, generally, we sort of say: ‘Okay, now we’ve gotten to this tipping point, what we expect is an acceleration in organic growth in that particular service as we become the obvious supplier to the industry’.”
He adds that part of the strategy is about geographic reach, and “the other part is about simple scale, you know, the bigger you are, the easier it is for your big clients to understand that they can give you big pieces of work, because you have scaled to handle it”.
“We’re not involved in some sort of mad dash to buy any company that comes across our path. We’ve been very, very selective as to which companies we want to build this geographic footprint to build a degree of scale and to flesh out the expertise that we have in the service line,” Day adds.
With the Covid-19 pandemic continuing to dominate our lives, no conversation can take place without it being discussed. Like thousands of other businesses across the world, staff at Keywords have been forced to work from home since early last year.
However, the move to working from home for the com
‘We couldn’t just pick up our computers and go work from home when Covid hit’
‘Weare very proud of the work wedo’
pany was more complex than most, involving “lots of client conversations”.
“One of the things to remember is that we’re dealing with some incredibly valuable IP, intellectual properties, if you’re working on Call of Duty or something, and you decide, you’re just going to no longer do that work in a secure facility and just take it home and work on it there, you can see where that might lead if you’re not careful.”
“So we really had to go through all of those sort of consents, making sure that our clients were comfortable with what we were doing, they understood the security protocols we’re putting in place in order to protect their IP. And also from our side we had to change some contracts with our clients, because we clearly couldn’t, clearly, we’re no longer going to be in compliance with those contracts, because of the change in our security status,” Day explains.
The whole process was, he adds, “a bit more involved than people might think, it wasn’t entirely within our control, to just decide, ‘okay, we’re going to just move everything, pick up our machines and put them in the car and take them home’, it wasn’t quite like that.”
Day is quick to credit the Keywords employees for their efforts during the transition, who were “working crazy hours to make that happen”.
While Keywords aims to be the ‘go-to’ company for the video games industry, it has no plans to start developing games of its own.
“We like our position in the games industry. I mean we’re quite proud of the fact that investors see us as the sort of picks and shovels to the gold miners,” Day says.
The company’s clients are “out there risking huge amounts of their own capital to build a game that they hope to be able to sell enough copies of, or to get enough players and paying for subscriptions or for microtransactions, to recoup the cost of production and then go on and hopefully make a big profit as well”.
“For us, we have a different idea of a business model, whichis,wedowork–weare very proud of the work we do – and then we get paid for that. We don’t put our capital at risk, you know, we get paid for every hour of work we put into a video game and so that means that we forego the upside if a game is hugely successful, but on the other hand, we don’t carry any risk, and the games business is a risky business. It’s also a hugely rewarding business when you get it right,” he says.
“So, yeah, it’s just a different business model, we’re very content to be a service provider, we’re hugely proud of the work that we as individuals, and as a company produce in the name of our clients. And we love the fact that there’s a little bit of Keywords in pretty much any video game of note, any video game on people’s minds, there’s a bit of Keywords in them all.
“And that’s a position that we like, and we don’t want to jeopardise it by starting to compete with our clients or something, I don’t think that would be a particularly great move.”
It is clear that Day, who “always wanted to be running my own business, I’m very sort of practical and always thought of myself as being an engineer,” devotes huge thought to the strategy of the company.
However, one area that he does not concern himself with is the Keywords share price.
“The bit which I’ve never really stopped to think about much – partly because I never planned it, have never written a strategy – is what happens to the share price over time as you sstep through these various stages, and you get some sort of growth,” he says.
“I suppose if you said: ‘well, am I surprised to find ourselves as a £2bn market cap company?’ as we are more or less, I’m not sure where we are today. Because I don’t follow the share price that closely, more or less a £2bn company, would I would I be surprised by that?
“I honestly don’t know, because I never thought about what the share price or the market capitalisation could be,” Day says.
Nonetheless, he adds that “it’s really quite an achievement to get there and to get that, in sort of seven or eight years from flotation, given that we were only valued at about £40m or £50m at floatation, it’s quite a journey to have been on.”
Looking forward, Day thinks this year is “going to be better because our clients have figured out how to and how to deal with the new environment, so I think 2021, ‘22, ‘23 are going to be really interesting years in terms of demand for our services”.
The Keywords journey looks like it still has many levels yet to be completed.
‘I’m very practical and always thought of myself as an engineer’