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Fortis Advisors, a seller representative acting on behalf of Kixeye’s shareholders, filed the lawsuit today in Delaware’s Chancery Court. In it, Kixeye alleges that Stillfront deliberately breached a merger agreement over a $30 million “earnout,” or a bonus to be paid if Kixeye hit certain milestones. The lawsuit gives a window into normally private negotiations between companies.
We’ve asked Stockholm, Sweden-based Stillfront for a comment (and it is at the bottom of the story). In June 2019, Stillfront bought Kixeye for $90 million in an agreement that had an earnout of $30 million based on Kixeye’s expected financial performance for 2019.
Kixeye made popular real-time strategy games for mobile devices and PCs. The titles included games such as War Commander: Rogue Assault, Battle Pirates, War Commander, and Vega Conflict.
Fortis accused Stillfront of doing some creative accounting that made Kixeye’s results look worse than they actually were in an allegedly bad faith attempt to evade the earnout payment.
Under the original deal, Stillfront did not acquire all of Kixeye. Kixeye planned to spin off operations related to the unreleased game Kingdom Maker, which was still under development.
The earnout would be based on a non-GAAP measure of financial performance dubbed adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Stillfront allegedly retroactively “readjusted” or intentionally manipulated its pre-merger expenses, making it all but impossible for Kixeye to hit its earnout target.
Stillfront also allegedly dramatically cut spending on Kixeye’s games after the merger, even though it had described the games as stable and profitable before that. Prior to the acquisition, Kixeye had more than 70 million unique users.
In January 2020, Stillfront announced it had laid off the Kingdom Maker team, eliminating about 20 jobs. But it’s not clear why they said that, as the Kingdom Maker team moved over to Global Worldwide where it continues on the game.
[Updated: 10/19/21 at 11:27 a.m. Pacific with Stillfront comment]
In a statement, Stillfront said:
Fortis Advisors, representing the sellers of Kixeye, has filed a complaint against Stillfront in the Court of Chancery of the state of Delaware. Fortis claims that Stillfront has breached the merger agreement in bad faith and owes the sellers the maximum $30 million earnout amount payable under the merger agreement for the financial year 2019.
It should be noted that Kixeye continued to underperform also during 2020 which resulted in a cost optimization project of Kixeye which was initiated in the beginning of 2021 to compensate for its long-term decline in revenue. Kixeye’s development has been mentioned several times in Stillfront’s quarterly reports.
The Fortis Advisors are representing sellers and owners that have not been active in Kixeye since before the acquisition by Stillfront.
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