Games Industry M&A Outlook 2020: Who's Getting Acquired Next?

Today we discuss the current state of M&A aka mergers & acquisitions in the games industry.

We deconstruct the drivers behind a lot of recent activity in acquisitions. Further, there seems to be an open question now of whether the current trend can continue or not. However, Zynga seems to indicate the M&A gravy train continues. Alternatively, will we see a major slowdown?

Specifically we’ll speak to:

• #1. What has driven the recent spate of M&A in the games industry?

• #2. Why has Zynga historically sucked at M&A and suddenly seem like they are amazing at it more recently?

• #3. Who are the buyers in the market

• #4. Who are the acquisition targets? Further, speculation on Warner Bros?

• #5 Predictions on M&A trends short term/long term?

And with us today to speak to all of these issues and more are:

• #1. Saad Choudri, Chief Commercial Officer, at Miniclip

• #2. Jeff Cohen, Research Analyst at Stephens Inc.

• #3. Michael Metzger, Partner at investment banking firm Drake Star Partners

Watch the video now!

Some key take-aways summarized by the awesome Joakim Achren from Elite Game Developers below:

What has driven the recent M&A activity in the games industry?

Saad: Many publicly traded companies are doing well at the moment. They're trading at high multiples. We've reached maturity in mobile. We're seeing "forever franchises," games that will stay on top forever. Big players want to pick up as many assets as possible, not to get left behind. [They've realized that the] simplest way to grow is through M&A. Also, many founders and VC are looking for liquidity events.

Michael: Some companies have grown mainly through M&A, like Embracer, who were tiny several years ago, but have executed a successful M&A strategy.

Jeff: Businesses that are at economies of scale are looking to do M&A. Mobile has been in hyper-growth, and there's been lots of whitespace for small companies to grow. Now, CPIs have gone up to the point that consolidation is happening, and big players are getting bigger.

Saad: I see it as a Peloton. You have a pack of leading companies. To keep up with the leading pack, you need to do acquisitions.

Why has Zynga gotten better in M&A?

Michael: Zynga has now focused on later-stage co's with $100m+ revenue per single title. Risks are much lower. They're also attracting the right talent, and they integrate the companies well.

Jeff: [Zynga] weren't the highest bidder for Peak, but the founder chose to go with them because he wanted Zynga equity, and he wanted to be part of the Zynga family.

Saad: [Zynga is now buying] mature businesses. Any major acquirer right now would prefer a decentralized model, because it means that you can let these companies [operate independently] and give them growth targets.

Michael: The gaming industry's earn-out model works because gaming entrepreneurs always think the next game is going to be amazing. And that's fine for the acquirer. Zynga has often paid all cash / stock at close though.

Who are the buyers in the market? Who are the targets, any speculations?

Michael: Playtika is gearing up for an IPO, and they are diversifying out of the social casino space through acquisitions like Seriously and Wooga.

Saad: Tencent, Netease, ByteDance as acquirers. Some targets: WildlifeStudios, First Touch Games, Hutch.

Saad: There's plenty of targets left in the market. It's just a case of does it fit with your product strategy? And where you want to go as a business, because you don't want to buy everyone. It needs to fit.

Jeff: [For a public company], how big would the acquisition need to be interesting for the market? If you're talking about [Glu Mobile], they're probably going to look to buy something in $50m to $100m in revenue, and that's somewhat meaningful to them. If you're Zynga, you need something bigger. For EA or Activision, you need something even bigger.

Short-term and long-term predictions for M&A in gaming?

Michael: [After COVID highs], revenues will taper off. That's why I expect a lot of deals happening towards Q4. A lot of the public companies want to add meaningful acquisitions to their financials.

Saad: I think there's plenty of opportunity in terms of the companies that are still growing and could become huge companies with the right support. That's why I think the mobile gaming space is still so interesting.

Jeff: Investors in the broader market are starting to focus on games. This trend of entertainment is becoming more interactive; more social games are becoming platforms. I think a lot of mainstream investors are taking note of those trends. Epic being the poster child.

Joseph: "[To summarize], all of the low hanging fruit has gone in terms of the decentralized, ready-to-go targets. But if you're willing to operate [globally], and to roll up your sleeves and help these studios that are on the cusp of hitting scale, get to scale, then there are lots of opportunities."