Video Game M&A Watch List

Executive Summary

Video games benefitted immensely from COVID-19 lockdowns, hitting all time highs across every major KPI — install base, engagement, and spending. Better yet, their surge in popularity is sticky — by the end of this year the market size will be $200B, having grown 32% from pre-COVID levels (9.5% CAGR).

And as the market continues growing, so too does the M&A activity:

• 2020: $33.6B (665+ transactions)
• 2021: $85B (1,100+ transactions)
• Q1 2022: $95B

Just 3 months into this year, 2022 has already broken deal volume records, due in large part to the console wars ramping up:

• Microsoft acquired Activision Blizzard for $68.7B
• Take-Two acquired Zynga for $12.7B
• Sony acquired Bungie for $3.6B

A few key trends we’ve noticed and their impact on future deal flow:

• Increasing Media Customer’s LTV: The buyer-verse is expanding as gaming is a compelling vertical for media companies to diversify. Netflix made its foray into gaming by acquiring three different game developers over the past twelve months, focusing on story-driven developers (e.g. Night School Studio, Boss Fight Entertainment) to gamify their TV & film titles. As the streaming wars intensify, we believe that other streamers may want to activate their IP cross-channel to create interactive experiences with a goal of keeping fans engaged with hit shows and diversifying revenue streams. Bytedance, the parent company of TikTok, has also entered the gaming scene with 2 acquisitions in 2021, similarly looking to diversify, take advantage of China’s world-leading gaming market, and monetize the millions of users on its social platforms.

• Hyper-Casual Mobile Gaming as an M&A Target: Mobile gaming accounted for 57% of total video game revenue in 2021. Particularly, hyper-casual mobile games accounted for 38 of the top 100 most downloaded mobile games in 2021 and HC was the only mobile game genre to see YoY download growth. We expect HC mobile games to be attractive acquisition targets to publishers that want to invest more into mobile.

• Streaming Wars Pt.2: Private equity firms have been relatively slow to jump on the gaming space thus far, but we expect they will become more active in 2H’22. The console wars are picking up steam with both Sony and Microsoft making massive acquisitions to bundle into their subscription passes. Furthermore, as the buyer-verse expands with big tech companies such as Amazon, Apple, and Tencent looking to get a chunk of the gaming pie, as well as adjacent media platforms diversifying to gaming, video game IP will be more valuable than ever on all platforms. In what is set to be a repeat of the streaming wars, private equity firms will make big bets on video game developers that will fuel gaming content for years to come — especially those that are producing original IP.

• Web3: Web3 and next-gen tech will drive a new and sustained wave of video game M&A. Video games fit naturally with the Web3 community ownership ethos, hence the rise of “Play to Earn” games. Animoca Brands is rolling up a countless number of game developers into their P2E powerhouse, Microsoft used “metaverse” as its primary rationale for acquiring Activision Blizzard, and Meta acquired gaming studios to develop its new VR experiences for Oculus. Non-Web3 studios will soon be forced to make similar acquisitions to remain competitive and stabilize their foothold in the next-gen gaming space.

It will be interesting to see how big of a record breaker year 2022 turns out to be for video game M&A. Stay tuned and enjoy the findings!

Last Updated: May 2, 2022

*All valuation data gathered from Capital IQ

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