iCandy Interactive becomes largest ASX-listed gaming company via acquisition of Lemon Sky Studios

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By George Tchetvertakov - 
iCandy Interactive ASX ICi Lemon Sky Studios acquisition gaming

iCandy Interactive says its acquisition of Lemon Sky Animation will create the largest gaming entity of its kind in South East Asia, Australia and New Zealand.


Mobile gaming and digital entertainment company iCandy Interactive (ASX: ICI) has announced a $44.5 million acquisition of South East Asia-based game art and animation company Lemon Sky Studios.

Lemon Sky has an extensive portfolio of AAA games, meaning games that wield maximal visual and gameplay quality while typically carrying higher development and marketing budgets.

As a means of funding the acquisition, iCandy raised $40 million via an institutional funding round cornered by Animoca Brands and the introduction of some of Australia’s leading long-only funds to its share register.

As the leading investor in this round, Animoca Brands opted to invest $10 million into iCandy with $17.8 million from the $40 million total to be used to acquire Lemon Sky.

The deal will be funded with $17.8 million in cash and $26.7 million in newly issued shares and will see Lemon Sky Studios being consolidated as an iCandy subsidiary from the date of completion.

The acquisition is conditional upon iCandy obtaining suitable shareholder approval in an extraordinary shareholders meeting in the coming weeks. In total, the deal is expected to complete in less than three months.

The rationale behind the deal is for iCandy to leverage Lemon Sky’s strong track record, as well as its expertise in game development, to position itself as a top-end game developer working on AAA games for a bespoke online “metaverse” – a new concept whereby users play and work in a virtual online world, involving an immersive experience that utilises multiple technologies including virtual and augmented reality.

iCandy said it intends to “develop a AAA-style mobile game based on the combined expertise of iCandy and Lemon Sky”. A joint-venture venture between the two companies, Sky Candy, was first made public in January this year as an early indicator of iCandy’s broader game development and expansion aspirations.

Lemon Sky has 350 employees. Post acquisition, iCandy (the combined entity) will have more than 450 employees.

Scaling up

Notably, as part of the deal, two of Lemon Sky’s executive directors will retain their existing roles in the acquired company for three years with an option to renew for another three years thereafter.

iCandy’s management said that the 450-strong team was a “key strategic outcome” of the acquisition due to the chronic scarcity of talent in the industry. Moreover, the new entity will aim to deliver “multiple new revenue streams” to further diversify iCandy’s balance sheet.

Lemon Sky has worked on major game titles such as Uncharted: The Lost Legacy, the Last of Us Part 2, Final Fantasy VII and the Final Fantasy XIV franchise.

Notable clients and partners who have worked with Lemon Sky Studios include globally renowned powerhouses such as EA Entertainment, Microsoft Studios, Disney, Nickelodeon and Blizzard Entertainment.

Financial performance

The acquisition of Lemon Sky is expected to boost iCandy’s balance sheet and “significantly enhance” its financial position given Lemon Sky’s strong financial performance over the past year.

In its most recent accounts statement, Lemon Sky revealed that it generated $14.8 million in revenue and $8.25 million in gross profit in 2020. Furthermore, Lemon Sky achieved $3.92 million in profit after tax and holds around $6 million in cash reserves.

In terms of the target market, the global video gaming industry is on track to swell to around $360 billion by the year 2025.

According to gaming industry research provided by Statista and Newzoo, the APAC region contains the lion’s share of the world’s gamers, estimated to be around 1.5 billion (around 55% of the 2.9 billion gamers worldwide).

The combined entity will allow iCandy to “realise potential business synergies” between both companies while maintaining an existing underlying business that’s commercially viable in its own right.

Importantly for iCandy, Lemon Sky’s human capital and talent base are set to give iCandy “important advantages” in its search for cult-classic gaming titles over the coming months and years.

“Post-acquisition, the company will focus on integrating and harnessing the synergies of the combined businesses to drive accretive value for shareholders,” iCandy said.