Undead Labs Nearly Sold to Splash Damage Before Becoming Independent

Undead Labs, the developer behind the State of Decay series, was reportedly close to being acquired by UK studio Splash Damage during Xbox’s broader corporate reset. The proposed transaction ultimately collapsed.

Undead Labs announced on Tuesday that it remains focused on State of Decay 3, while operating as an employee-owned studio outside Microsoft. Xbox acquired the developer in 2018, but the move to independence was not the original plan.

As reported by The Game Business, Splash Damage had been working towards an acquisition of Undead Labs. The deal was to be financed by Splash Damage’s private-equity backers, Emona Capital.

Emona Capital also funds Secret Mode, the publisher behind the upcoming Star Wars: Galactic Racer. Despite the backing, the proposed Undead Labs purchase fell through for reasons that have not been made public.

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Following the failed sale, Undead Labs’ leadership and staff found a path to take control of the studio themselves. The team is now completing State of Decay 3, which does not yet have an announced publisher.

A difficult transition to independence

Undead Labs’ employee ownership represents a positive outcome for the studio, but the transition has also brought layoffs. The situation is similar to that of Double Fine, another developer that has recently returned to independent status.

Elsewhere, former Xbox-owned studio Ninja Theory reportedly faces a less certain future. Acquisition discussions involving the developer also failed, and it has begun a process that could lead to closure later this year.

These developments follow Xbox’s latest layoffs and internal restructuring, after further cuts and changes in July. More changes and layoffs are expected at Xbox before the end of the year under new boss Asha Sharma.

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