Gaming Consolidations – Forming the Perfect Tetrix
Anjal Agrawal
M&A and Strategy at Virtusa || Ex-IB at Nomura (PPO) || IIM Shillong (17-19) || CA || Yes Bank FutureReady Scholar || Ex-JPM || Ex-Baker Tilly DHC || #ProudSINKWAD
With 3bn people actively playing games today and fueled by a new generation steeped in the joys of interactive entertainment, gaming is now the largest and fastest-growing form of entertainment. Microsoft became the world’s third-largest gaming company by revenue, behind Tencent and Sony post its acquisition of Activision Blizzard.
2023 was a good year for gaming deals with $20bn in deal value across 163 M&A deals. Savvy Games Group/PIF’s acquisition of Scopely for $4.9bn, Kahoot’s acquisition by the Goldman Sachs consortium ($1.7bn) and Techland’s majority acquisition by Tencent ($1.6B) were the only $bn+ deals. Another notable transaction includes Sonic the Hedgehog maker Sega’s deal to buy Angry Birds owner Rovio for $770m. $3.5bn was raised in 750+ financing rounds of private companies. Mobile was the most active segment (168), followed by blockchain (159) and platform/tools (143).
The most active VCs globally in the early to late stage included Bitkraft, Andreessen Horowitz, Play Ventures and Griffin Gaming while the most active seed stage VCs were Goodwater Capital, 1Up Ventures, Sfermion and Shima Capital.
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Mobile Gaming on the Rise and Netflix’s Bet on Mobile Gaming Studios
Mobile is the largest segment in gaming, with nearly 95% of all players globally enjoying games on mobile. The market is already bigger than the console and PC gaming markets combined; worth $124bn in 2023, mobile gaming revenue will grow to $195bn by 2030.
The growing maturity of streaming (supported by 5G), cloud gaming, and mobile esports, combined with the fact that mobile platforms are close to technical parity with PCs and consoles, means most gamers will embrace mobile gaming in the next few years. The ability to run high-quality, big-budget games (e.g., Resident Evil 4 and Assassin’s Creed Mirage) on mobile platforms will attract more publishers and gamers in the market.
Netflix has prided itself on being a builder over a buyer. But that’s begun to change in recent years with the streaming service acquiring a host of different companies including gaming studios (mainly mobile gaming developers). It has acquired Night School Studio (adventure game Oxenfree), Next Games (mobile games and Stranger Things: Puzzle Tales), Boss Fight (mobile game Dungeon Boss), and Spry Fox (the independent developer behind Alphabear, Road Not Taken, Triple Town, and Cozy Grove). To read more about Netflix’s M&A strategy, do give this article a read – Five Tech Giants – Five Very Different Strategies (Part 2).
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Pokémon GO – The 20-Year Overnight Success
"It takes 20 years to make an overnight success." – Eddie Cantor
In Jul-16, Pokémon GO – a smartphone game became a global overnight success when it was launched. With 10m+ downloads in the first week, it was already generating $2m a day! Did you know, however, that this global phenomenon was the result of a 20-year journey travelled by serial entrepreneur and former Google employee John Hanke? Like all legends, Mr Hanke followed some well-established principles to achieve legendary success since his first programming experiments as a student in 1996.
John Hanke used his relationships with former Google colleagues and brought them over to his company Niantic at the start of 2016 to create Pokémon GO. For investments, John started with his former employer; Google and through that relationship was able to secure a total of $25m from a collective that also included Nintendo, the Pokémon Company.
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Situation on the Polish Domestic Market
Poland is a significant player in the global gaming market, and domestic productions in the form of The Witcher or CyberPunk 2077 are on the lips of the entire gaming world. CD Projekt’s games have already brought in PLN 1bn, selling a total of 75m copies. Other Polish studios, such as Forever Entertainment, have seen their revenues increase fifteenfold in five years, reaching €10m. The results are also followed by the scale of employment – the Polish industry employs 15k+ developers, placing it second in Europe, just after the UK. The success is certainly helped by relatively low taxation, namely the R&D tax credit and the IP Box relief.
Polish games are popular on the top platform Steam, ranking second on users’ wish lists and accounting for 15% of the list of the 200 most anticipated games. The Polish industry is developing dynamically, attracting attention around the world, including from investors. The Polish gaming industry is expected to witness big deals in their ecosystem.
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2024 Outlook
Between Jan-21 and Feb-24, most mobile gaming M&A deals involved large game publishers acquiring smaller mobile game developers to expand their portfolios and customer bases. However, the volume of mobile gaming M&A deals was lower in 2022 and 2023 than in 2021. This is attributable to the industry’s slowdown in the post-Covid years and the impact of macroeconomic factors such as high inflation. As a result, in 2023, many mobile gaming companies laid off employees, tightened spending on acquisitions, and restructured operations to stay afloat.
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After a hyperactive COVID period (2020-22), deal activity gradually shifted back to the pre-COVID levels in 2023 and M&A activity is predicted to steadily increase again in 2024.
Top buyers will likely be Tencent, Sony, Scopely / Savvy Games, Keywords and Take-Two, while ByteDance is about to sell its gaming business and Embracer will likely divest some of its studios. We expect Savvy Games to continue deploying more out of the $38bn earmarked for gaming M&A and financings this year. With a tightening regulatory environment in China, we foresee Tencent and other Chinese strategics to continue increasing their investments and acquisitions in the Western markets.
Private equity firms will be attracted by the ongoing lower valuations of listed gaming companies, and several gaming companies are expected to be taken private. With the public gaming market improving in 2024, some of the IPO-ready gaming companies are expected to restart efforts to go public in the second half of the year.
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This article is an introduction to my upcoming series “Gaming Consolidations – Forming the Perfect Tetrix” comprising 4 case studies on acquisitions by the biggest gaming companies in the world – Microsoft <> Activision Blizzard; Sony <> Bungie; Tencent <> Supercell and last case study dedicated on the gaming wars for dominance between Playstation, Xbox, Nintendo and Tencent.
Until then, thank you for your time. Please post your feedback and comments.
Please find below all the information sources that have been instrumental to the above article, along with some additional reading materials. Gratitude to all the creators –
2.????? https://www.dhirubhai.net/pulse/gaming-evolution-growth-through-ma-impact-esports-mygrowthpal/
6.????? https://www.verdict.co.uk/mobile-gaming-is-booming-but-is-not-immune-to-inflationary-pressure/
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Digital Marketing Analyst @ Sivantos
7 个月Sounds exciting! Looking forward to diving into those case studies. ?????