eResearch | In this past week’s PocketGamer Connects Digital #2 (“PGC”) conference, multiple panels and presenters spoke on the state of the gaming industry’s M&A and funding environment considering the COVID-19 pandemic. Speakers came from companies including: Agnitio Capital, CVCapital, Execution Labs, Fundamentally Games, NCSoft Corp. (KRX: 036570), Stillfront Group AB (OM:SF), and Transcend Fund.
Stillfront Group
On a panel called “Stillfront Group – Growing from $20 Million to over $2 Billion Market Capitalisation in Five Years Mainly Through M&A”, Stillfront’s CEO, Alexis Bonte, explained the strategies he took and the strict evaluation criteria he used, to acquire and create a successful family of 14 gaming studios with a collective portfolio of 50 games and 2 billion players.
Bonte believes in a strong fundamental approach, which he says is the reason why every single studio in his portfolio reached profitability.
This approach was born from a philosophy of acquiring good development teams, rather than hiring several individual top talents to work on a game.
An important criterion in Stillfront’s investment strategy is diversification. Earlier this year, Stillfront acquired Candywriter LLC for US$74 million to add a casual games development team, which it lacked, to its family of studios.
Stillfront’s current acquisition strategy is focused on expanding its talent to bring in a studio skilled in developing sports-related games.
Beyond M&A, Stillfront also leverages its network of studios to collaborate. If one studio lacks talent in a specific area for a project, other studios can provide support. Stillfront’s network of studios has launched 50 collaborations with 40 still live and ongoing.
Gaming Industry: Deals and Funding Activity
Several speakers at the PGC conference echoed the resilience of the gaming industry against the pandemic, saying it had little impact on M&A deals existing prior to lockdowns, with important investment criteria such as user activity and revenue remaining strong.
Last week, eResearch highlighted Zynga Inc. (NASDAQ: ZNGA) and its US$1.8 billion acquisition of Peak Games, in an article called “Zynga Acquires Turkish Mobile Games Developer Peak Games for $1.8B, Boosting Daily Active Users by 60%”
Recent M&A and other deals in the gaming industry include:
- On June 2, 2020, Glu Mobile Inc. (NASDAQ: GLUU), a mobile game developer and publisher, announced intentions to raise US$100 million in a common stock public offering.
- On June 2, 2020, NetEase Inc. (NASDAQ: NTES), a China-based gaming company, announced intentions to raise US$2.8 billion on the Honk Kong stock exchange.
- On June 2, 2020, Playtika Ltd., a mobile gaming company owned by a Chinese investor group, announced preparations to raise US$1 billion in an IPO on a U.S. stock exchange.
- On June 3, 2020, DoubleDown Interactive LLC, a popular casual casino games developer based in the U.S., announced filing for an IPO.
- On June 3, 2020, Unity Technologies Inc., a U.S. software company focused on game development tools, announced preparations to IPO this year.
On a panel called “2020 M&A and Investment Overview, Expectations & Consequences”, David Bluhm, Managing Director of Agnitio Capital, a mobile games focused investment bank, said he expects several of his pre-COVID-19 initiated deals to close this year.
However, Bluhm mentioned that venture capital firms are currently managing internal and personal priorities due to the pandemic, with higher conservation of liquidity in case companies in their current portfolios need capital in these times of economic uncertainty.
In addition, several factors may increase difficulties for new deals to close, especially for larger acquisitions, as some investors and buyers want to physically meet management teams before facilitating a transaction.
COVID-19 Impacts on Small Studios
In the same panel Bluhm was on, Jason Della Rocca, Co-founder of Execution Labs, mentioned that, in light of the current economic downturn, investors seek at least 24 months of runway on financial statements of start-up studios before considering them as potential acquisition candidates.
This is difficult for most small independent studios, as without funding, they must bootstrap development costs, leading to less funding for product testing and quality assurance, which ultimately increases doubts about the success of their games.
As the gaming industry continues to close and implement deals signed pre-COVID-19, it will be interesting to see the M&A new deals landscape in Q3/2020 and Q4/2020. Though quantitative financial data can be easily shared online for a transaction, fit and culture is harder to determine unless interested parties physically meet.
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