THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

Keywords Studios plc ("Keywords", or the "Company" and, together with its subsidiaries, the "Group")

Proposed Acquisition of VMC

A major acquisition in North America; significantly earnings enhancing

Keywords Studios plc, the international technical services provider to the global video games industry, is pleased to announce that it has entered into a conditional agreement to acquire the entire issued share capital of VMC Consulting Corporation and Volt Canada Inc. (collectively, "VMC"), a leading provider of video game Functional Testing and Customer Support in North America (the "Acquisition"), from Volt Information Sciences, Inc. ("Volt") for a cash consideration of approximately USD $66.4 million (the "Consideration"), subject to certain working capital adjustments.  The Consideration and working capital adjustments and related transaction costs are intended to be funded by a fully underwritten cash placing of approximately £75 million (before expenses) of new ordinary shares in the capital of the Company (the "Placing"), details of which have been announced by the Company separately today.

The Board believes that the Acquisition has a compelling strategic and financial rationale as it:

·     Brings to the Group a leading provider of Functional Testing and Customer Support in North America, with adjusted revenue of USD $57.4 million and adjusted EBITDA of USD $6.4 million on an annualised basis in the year to October 2017[1]

·     Increases Keywords' market share and footprint, growing Functional Testing and more than doubling the size of its Customer Support offering, in the key North American market

·     Adds a business of scale, with a reputation for a high quality service and a strong, blue chip client base

·     Has an attractive 'Embedded Technical Services' offering, wherein VMC manages various technical services within its clients' premises through long-standing client relationships. The Board believes this service affords the Group the opportunity to cross-sell Keywords' broader services to VMC's client base, including as embedded services, and to offer VMC's embedded service model to its own major clients

·     Is recognised in the market as being the "go-to" outsourced manager of crowd-based testing of games by vetted private individuals through its 'Global Beta Test Network' which is attractive to Keywords and offers material cross selling and roll-out opportunities

·     Is expected to benefit from being part of a group focused on similar services and with global reach (as opposed to being part of a broader staffing business)

·     Should deliver, in the view of management, material cross-selling, cost saving and margin improvement opportunities under Keywords' management

·     Is expected to be significantly earnings enhancing in the first full year

The Acquisition is expected to be completed on or around 30 October 2017, conditional upon, amongst other things, completion of the Placing.

Andrew Day, Chief Executive of Keywords, commented:

"We're thrilled to announce the acquisition of VMC which, as our largest acquisition to date, represents an important milestone in our strategy to selectively consolidate the fragmented video games market and generate synergies through scale in certain services and geographies.

"VMC is an organisation we've admired for several years for its reputation, scale and high quality service as well as its attractive embedded technical services and crowd-based testing services.

"With secure testing labs in Seattle and Montreal, very close to Keywords own studios, we expect to be able to leverage the strengths of both organisations while achieving significant cost synergies to deliver profit performance similar to that of the rest of the Group.

"We look forward to working with the team at VMC to support their growth as part of a group providing similar services as we realise the benefits of combining our complementary services and locations into what we believe will be a compelling offering for our broadened client base not only in North America but also internationally."

For further information, please contact:

IMPORTANT NOTICE 

This announcement has been issued by, and is the sole responsibility of, Keywords Studios plc.

This announcement is not and does not contain an offer of securities for sale or issue, or solicitation of an offer to purchase or subscribe for securities, in the United States Australia, Canada, Japan, South Africa or in any other jurisdiction in which such offer may be unlawful. The securities referred to in this announcement have not been and will not be registered under the United States Securities Act of 1933, as amended (the "US Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States, and may not be offered, sold or transferred, directly or indirectly, in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act, in each case in compliance with any applicable securities laws of any state or other jurisdiction of the United States.

Certain statements in this announcement are forward-looking statements which are based on Keywords' expectations, intentions and projections regarding its future performance, anticipated events or trends and other matters that are not historical facts. These forward-looking statements, which may use words such as "aim", "anticipates", "believe", "intend", "estimate", "expect" and words of similar meaning, include all matters that are not historical facts. These forward-looking statements involve risks and uncertainties that could cause the actual results of operations, financial condition, liquidity, dividend policy and the development of the industry in which the Group's business operates to differ materially from the impression created by the forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by the Financial Conduct Authority, the London Stock Exchange plc or applicable law, Keywords undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

This announcement contains certain financial measures that are not defined or recognised under IFRS, including adjusted EBITDA (being earnings before interest, tax, depreciation, amortisation).  Information regarding these measures are sometimes used by investors to evaluate the efficiency of a company's operation and its ability to employ its earnings toward repayment of debt, capital expenditures and working capital requirements.  There are no generally accepted principles governing the calculation of these measures and the criteria upon which these measures are based can vary from company to company.  These measures, by themselves, do not provide a sufficient basis to compare the Company's performance with that of other companies and should not be considered in isolation or as a substitute for operating profit or any other measure as an indicator of operating performance, or as an alternative to cash generated from operating activities as a measure of liquidity.

No statement in this announcement is intended to be a profit forecast and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future years would necessarily match or exceed the historical published earnings per share of the Company.

Neither the content of the Company's website (or any other website), nor the content of any website accessible from hyperlinks in the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

All times and dates in this announcement are to London time and may be subject to amendment.  

The price of shares and any income expected from them may go down as well as up and investors may not get back the full amount invested upon disposal of the shares. Past performance is no guide to future performance, and persons needing advice should consult an independent financial adviser. 

About Keywords Studios (www.keywordsstudios.com)

Keywords Studios is an international technical services provider to the global video games industry. Established in 1998, and now with 37 facilities in 18 countries strategically located in Asia, the Americas and Europe, it provides integrated art creation, software engineering, testing, localisation, audio and customer care services across more than 50 languages and 16 games platforms to a blue-chip client base in more than 15 countries.  It has a strong market position, providing services to 23 of the top 25 most prominent games companies, including Activision Blizzard, Bandai Namco, Bethesda, Electronic Arts, Konami, Riot Games, Sony, Square Enix, Supercell, TakeTwo, and Ubisoft. Recent titles worked on include Uncharted 4: A Thief's End, Call of Duty: Infinite Warfare, Mortal Combat X, Assassin's Creed Syndicate, Battlefield 1, Overwatch, World of Warcraft: Legion, Hearthstone, Clash Royale, and Mobile Strike. Keywords Studios is listed on AIM, the London Stock Exchange regulated market (KWS.L). 

Introduction to VMC (www.vmc.com)

VMC was founded in 1999 as VMC Consulting Corporation to differentiate its provision of onsite managed services from the staffing business of its parent company, Volt Information Sciences, Inc., which is listed on the NYSE-MKT (VISI).

The business grew to include services provided from its own locations to (mainly) video games clients, and is now a leading provider of outsourced testing and customer support services focussed on the video games industry in North America and management believes it has a reputation for high quality service delivery.

VMC now employs approximately 1,300 staff directly or indirectly.  Its two principal operating locations are in Redmond, Washington and Montreal, Canada, which are both well situated to serve the Games industry.  In addition, VMC provides client site-based Embedded Technical Services in a number of locations across North America.

Embedded Technical Services

VMC has a number of long-standing client relationships through which they manage various technical services (primarily testing and customer support services) within client premises, including for a Fortune 100 software developer, a leading virtual reality hardware and software company, and a global video game developer.  Keywords management believe this insourcing approach creates a captive service offering centre that can be a key stepping stone on the path to fuller outsourcing arrangements with major clients.

Global Beta Test Network

VMC manages crowd-based testing of games through its 'Global Beta Test Network' (GBTN) service.  GBTN is a vetted group of private individuals who are called upon to test games using their home devices in towns and cities around the world, and is an extension to the testing services currently provided by Keywords as opposed to a substitute for in-house or on client site testing activities.

This service allows games to be tested "in the wild", in real world situations, with thousands of people playing simultaneously and is typically only provided in the last few days before a game is launched.  This offering is a capability that Keywords has been developing itself but Keywords' management believe VMC would bring cross-selling opportunities to Keywords' existing client base and roll-out opportunities across Keywords' global network.

Acquisition Rationale

The Acquisition brings to the Group a leading provider of Functional Testing and Player Support in North America with adjusted revenue of USD $57.4 million and adjusted EBITDA of USD $6.4 million on an annualised basis in the year to October 2017.[2] It adds a business of scale, with a reputation for a high 

quality service and a strong, blue chip client base.

VMC's addition to the Group is expected to increase Keywords' market share and footprint, growing Functional Testing and more than doubling its Customer Support offering, in the key North American market. 

VMC's 'Embedded Technical Services' offering is attractive to Keywords as the Board believes it affords the Group the opportunity to cross-sell Keywords' broader services to VMC's client base, including as embedded services, and to offer VMC's embedded service model to its own major clients.

VMC's manages crowd-based testing of games which is also attractive to Keywords as the Board believes it offers material cross selling and roll-out opportunities.

Furthermore, having been part of a broader staffing business, VMC is expected to benefit from being part of a larger group focused on similar services and the integration of the two businesses is expected to provide material cross-selling, cost saving and margin improvement opportunities under Keywords' management.

The Board believes that VMC is a well-reputed technical services provider of scale in a fragmented market and expects the Acquisition to be significantly earnings enhancing in the first full year.

Integration

The Board intends to integrate the Acquisition in line with standard Keywords integration protocols.  VMC will be aligned by service line, with all delivery operations moved to the Keywords common operating platforms of those global service lines.

As VMC's US and Canadian operations are entirely within KWS's Americas region, regional and country general management, HR, Finance and IT teams will lead the integration effort under the leadership of Nicolas Liorzou, Regional Managing Director, Americas just as they did with the Keywords' acquisitions of Babel (four service lines) in February 2014 and Enzyme (four service lines) in November 2016.

Certain services currently provided to VMC by parent company Volt (or its other subsidiaries), will continue to be provided under the terms of a transitional services agreement for up to six months while those activities are transitioned to Keywords.

The Board is confident that opportunities exist for cost-saving as VMC is integrated into Keywords, which are expected to be realised over two years.  Management estimates annualised savings of $1.5 million in the first year and a further $1 million in the second year of ownership.

Principal terms of the Purchase Agreement 

Keywords, together with its subsidiary Keywords International Limited ("Purchaser"), has entered into a stock purchase agreement (the "Purchase Agreement") with Volt Information Sciences, Inc. ("Volt") and Nuco 1, Ltd, a subsidiary of Volt ("Seller"), pursuant to which the Purchaser will acquire the entire issued and outstanding share capital of VMC Consulting Corporation and Volt Canada Inc. (together, "VMC", and such acquisition, the "Acquisition") on a cash-free and debt-free basis in exchange for an initial consideration of approximately $66.4 million in cash (the "Initial Purchase Price"). 

The Initial Purchase Price shall be subject to adjustment based upon an estimate of the working capital of VMC immediately prior to the consummation of the Acquisition (the "Closing").  Following the Closing, the Purchaser and the Seller will prepare a final calculation of the working capital of VMC immediately prior to the Closing and the Initial Purchase Price will be adjusted as necessary (as adjusted, the "Final Purchase Price").  A payment will then be made from the Purchaser to the Seller (if the Final Purchase Price is greater than the Initial Purchase Price) or from the Seller to the Purchaser (if the Initial Purchase Price is greater than the Final Purchase Price) to reflect such working capital adjustment.  

The Acquisition will be funded from the proceeds of the Placing.  Except in certain limited circumstances, the Purchase Agreement requires the Purchaser to obtain the consent of the Seller before agreeing to any waiver or amendment of the placing agreement to be entered into with respect to the Placing.  Consummation of the transactions contemplated by the Purchase Agreement is subject to a number of conditions, including completion of the Placing. In the event that the agreement governing the Placing is terminated, the Purchaser is required to use commercially reasonable best efforts to arrange for comparable alternative financing.

The Purchase Agreement contains representations, warranties and indemnities which are customary for a transaction of this nature.  The Purchase Agreement contains typical restrictive covenants regarding the operation of the business of VMC prior to Closing in order to ensure that it is run in the ordinary course consistent with past practice and that its business relationships are maintained.  The Purchase Agreement also contains other customary covenants, including with respect to (i) third party consents, (ii) restrictions on the ability of the Seller and its affiliates to compete with, and solicit employees from, VMC, (iii) public disclosures, (iv) financing matters and (v) certain tax matters.  The Seller is subject to a customary "no-shop" restriction on its ability to solicit, provide information in connection with or engage in discussions with respect to alternative acquisition proposals for VMC. 

The Purchase Agreement contains reciprocal guarantees given by each of Volt and Keywords regarding the payment, performance and indemnification obligations of the Seller and the Purchaser, respectively.

In addition to customary termination rights, either party may terminate the Purchase Agreement if the transactions contemplated therein are not consummated on or prior to 31 December 2017.  Except in certain limited circumstances, upon termination of the Purchase Agreement the Seller will be entitled to retain as liquidated damages a $500,000 deposit previously placed into escrow by Keywords. 

The total cost and expenses associated with the Acquisition and the Placing are expected to be approximately £2.4 million (assuming a Placing of approximately £75 million of new ordinary shares).

Principal Terms of the Transition Services Agreement

At the Closing, the Purchaser, VMC Consulting Corporation ("VMCCC") and Volt Canada Inc. ("Volt Canada"), will enter into a Transition Services Agreement (the "TSA") with Volt to facilitate operational continuity for Volt, Volt Canada and VMCCC following the Closing.  The TSA sets minimum levels of quality, quantity, and manner of performance of staffing services reasonably necessary to maintain the operations of VMCCC and Volt Canada during the transition period following the closing.  Services provided under the TSA are priced pursuant to a cost-based model with fixed monthly fees for specific services.  The TSA expires no later than six months following its effective date.

Principal Terms of the Indirect Staffing Agreement

At the Closing, VMCCC and Volt Workforce Solutions ("VWS") will enter into an Indirect Staffing Agreement (the "Staffing Agreement").  Under the Staffing Agreement, VWS will provide staffing services to VMCCC to recruit and place employees with VMCCC to meet VMCCC's staffing needs.  The Staffing Agreement is non-exclusive and expires two years from the effective date, unless VMCCC and VWS mutually agree to renew it.

Transaction Details

The Acquisition is for a total Consideration of approximately USD $66.4 million, payable in cash upon completion of the Acquisition.  The Consideration, combined with approximately USD $5 million of working capital and transaction costs, is intended to be funded by an underwritten cash Placing of approximately £75 million (approximately USD $100 million) (before expenses) of new ordinary shares in the capital of the Company (the "Placing"). The details of the Placing have been announced by the Company separately today.

Since coming to market in July 2013, Keywords' strategy has been to grow both organically and by acquisition to extend the Group's client base, market penetration and service lines, where the Group can use its existing expertise, multi-service platform, scale and global reach to generate synergies in the fragmented games services industry. 

Since IPO, the Group has made considerable progress in executing its growth strategy by extending its range of services and adding new geographies both organically and through selective acquisitions. These acquisitions have added 32 studios to the Group and have extended Keywords' offering into Art Creation, Customer Support and Engineering, as well as enhancing capabilities in existing service lines. Today, Keywords' network of studios is present in 18 countries (compared to five at the time of IPO), and in the six months to 30 June 2017 revenue grew by 50% versus the same period in the prior year, including contribution from acquisitions, or 17% on a like for like basis*.

*calculated on the basis that the H1 2016 comparative includes all of the 2016 and 2017 acquisitions as if they had been owned for the same period in 2016 as they have been in 2017.

VMC's Financial Performance and Opportunities for Improvement

VMC achieved revenue of USD $57.4 million and adjusted EBITDA of USD $6.4 million on an annualised basis in the year to October 2017.[3] Its Functional Testing, Customer Support and Localisation Testing service 

lines account for approximately 54%, 37% and 9% of its revenues, respectively.

The following is a summary of VMC's recent financial performance:[4]

Revenues declined over the historic period due to two material but low margin contracts ending. The impact of this has been adjusted to show that underlying performance has been broadly flat at revenue level with growth in VMC's profit margin.

VMC's full year 2016 performance was impacted by a restructuring taking place at VMC's parent, resulting in reduced costs in the business and a temporarily inflated level of profitability. As such, its full year 2017 annualised performance gives a better representation of the business that is being acquired. 

Keywords management believes that the financial performance of VMC can be materially improved through:

§ Increased focus on sales and application of Keywords best practice in this area

§ The removal of material duplicate costs upon integration into Keywords.  Management estimates an annualised cost saving opportunity of $2.5 million within 2 years

§ Targeting VMC operating profit margin to approach Keywords' group margin over time