Supercell Dominates The Realm: Game Maker Sells A 51%, $1.53B Stake To SoftBank and GungHo Online

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Another big move for Softbank into the gaming world, and a massive investment for Finnish gaming juggernaut Supercell: the company is selling a 51% stake for $1.53 billion to Japan’s SoftBank and games developer GungHo OnLine Entertainment. This strategic investment, which makes Supercell a subsidiary of Softbank, will be used to fuel Supercell’s global expansion. It effectively represents a quadrupled valuation for 100-employee Supercell to over $3 billion in the last seven months — bigger than that of publicly-traded social gaming giant Zynga at $2.86 billion.

GungHo (which also counts SoftBank as an investor) and Supercell have a pre-existing relationship announced earlier this year for in-game collaboration. Softbank, meanwhile, has been a major investor not just in mobile carrier networks, but also as a investor in services to run across those networks. It’s a major player both in Japan as well as in the U.S. with Sprint and has long held big ambitions to grow its business in mobile overall. In this deal, GungHo is investing 20% of the amount, and SoftBank the remaining 80%.

Under the terms of the deal, SoftBank notes that it and GungHo will jointly establish a special purpose company in Finland “by indirectly investing US$1,224 million (investment ratio: 80%) and $306 million (investment ratio: 20%), respectively.” That SPC will hold 51% of shares in Supercell’s voting stock on a fully-diluted basis for a total $1.53 billion.” Supercell will become a subsidiary of SoftBank, but it will continue to operate independently and maintain its headquarters in Helsinki, Finland, with co-founder Ilkka Paananen remaining CEO.

We heard about the deal earlier this morning. Then a tweet of the 51% stake and its value was the first mentioned publicly by a reporter at WSJ before we were able to get it confirmed by Supercell. (Now Index Ventures and Atomico, two of Supercell’s investors along with Accel and Institutional Venture Partners, are each also noting the deal.)

clash of clansSince opening for business in 2010 the maker of Clash of Clans has been on a growth tear. On a relatively small portfolio — essentially just Clash of Clans and Hay Day — the company has managed to hold on to the number-one games publisher position between February 2013 and August 2013 in indexes from analysts like App Annie. The two games, meanwhile, have been the top grossing games respectively in 137 and 96 Apple App Store countries. The business model is basic — free with in-app purchases — but combined with compelling content, it’s proven a to be a hit. For example in CoC, you buy assortments of gems to help you fight other clans and “dominate the realm.”

One of its lead investors once told me that he’d never seen growth like it, among all of the companies it has ever done business with, ever. (As a point of comparison on how well Supercell is doing at the moment: right now Zynga, with its bigger portfolio of games, is valued at $2.86 billion.) That trajectory resulted in the company raising a $130 million round at a $770 million valuation in April of this year. At the time, we were able to get some figures on Supercell’s performance: in the first quarter of this year, it made $179 million and netted $104 million of that after expenses and Apple’s 30% cut. In 2012, Supercell grossed $100 million. In April 2013, Supercell was making $2.4 million a day on 8.5 million daily active users. Considering that Supercell has now nearly quadrupled its valuation in the last seven months, those other metrics are likely to have kept growing.

Update: Below is the blog post from Supercell on the deal that we earlier managed to get before it was posted on the site. The photo above of Ilkka Paananen, CEO of Supercell, and Masayoshi Son, CEO of Softbank, is from that post.

The investment comes at a key moment in the question of how popular social and mobile gaming companies can best position themselves for sustained growth. King.com is reportedly gearing up for an IPO, and all eyes are on troubled Zynga and its upcoming quarterly earnings as an indication of whether the public markets are really the best home for fast-growing gaming companies.

In that context, Supercell so far has chosen to take a different route, backing away from turning to the public markets, with all their scrutiny, and instead giving employees and shareholders liquidity through secondary sales and going to VCs for further investments. That seems to be the motivation with taking this investment, too:

“This new partnership will accelerate Supercell towards our goal of being the first truly global games company, and gives us enough time to get there,” Paananen writes in the post below. (Emphasis mine.)

In this case, with SoftBank’s and GungHo’s investments come more secondary share sales. “As many of you know, a big part of Supercell’s culture is the idea of ‘we are all in this together.'” Paananen writes. “In line with this thinking, everyone at the company will participate in the upside and receive a portion of the proceeds from the investment. None of us work here just for of money, but when the company succeeds, everyone should get their fair share of it and this transaction is no exception.”

Masa, who Paananen describes the most long-term thinkers he has ever met, explains the rationale for SoftBank in Supercell’s blog post:

“In [SoftBank’s] quest to become the #1 mobile Internet company, we scour the globe in search of interesting opportunities and right now some of the most exciting companies and innovations are coming out of Finland. Supercell is one of those rare and special companies. While your success is impressive, it is your amazing culture and deep passion that truly inspired me. After getting to know Ilkka and some of the team, it became clear to me that you, like us at Softbank, are on a similar long and aspirational journey to shape the future of entertainment for the next hundred years. And, I’m excited to see an independent Supercell continue to rise with great people and great games, delivering happiness to so many people around the world.”

This is also a significant growth story for Finnish Supercell. Although the company’s management now splits time between San Francisco and Helsinki, all development and operations are still in its home country and intends to remain that way. “I think more and more people in this country are realizing that there is life after Nokia!” Paananen writes.

Developing. Refresh for updated version of above story.

Hi Everyone,

I have some very exciting news to share with you today. We have received a strategic investment of $1.5 billion from SoftBank and GungHo. This new partnership will accelerate Supercell towards our goal of being the first truly global games company, and gives us enough time to get there.

Let me try to explain why.

The combination of tablets, mobile and the free-to-play business model has created a new market for games, one that will be accessible to billions of consumers, more people than ever before in the history of games. This truly is a new era of gaming and has opened up exciting opportunities for new kinds of companies.

At Supercell, one of our greatest aspirations is to become the first truly global games company, one that has a strong foothold in both the West and the East, including Japan, Korea and China. We want to build a company that people all over the globe will look back in 30 years and talk about all the great games that we developed and the impact they had on people’s lives. The same way I personally feel about Nintendo, for example.

This is a lofty goal and getting there takes persistence, passion, and luck – but just as importantly, it takes time, and requires a lot of patience. Even if we have had a pretty good start on our journey, it is still very early days. Creating history takes time.

The strategic investment from SoftBank helps us to accelerate towards our goal in two different ways:

1) SoftBank provides us with a massive selection of strategic resources that will help us deliver our games to hundreds of millions of new consumers all over the globe.

2) SoftBank is all about the long term. In fact, I have never met anyone who thinks as long term as its founder, Masayoshi Son, does. When we first met, he told me he has a 300-year vision, and I thought he was joking until the following day when he ran me through what it actually looks like and it is indeed very real and extremely inspirational. When you meet someone like Masa you realize what it takes to build a global business that will last forever. It further strengthened my belief that, we are just getting started. As a company, we are 3 years old so we’re only 1% done if we plan for the next 300 years.

In his own words, here’s what Masa wanted to tell our players, employees and friends about Supercell and our new partnership:

“In our quest to become the #1 mobile Internet company, we scour the globe in search of interesting opportunities and right now some of the most exciting companies and innovations are coming out of Finland. Supercell is one of those rare and special companies. While your success is impressive, it is your amazing culture and deep passion that truly inspired me. After getting to know Ilkka and some of the team, it became clear to me that you, like us at Softbank, are on a similar long and aspirational journey to shape the future of entertainment for the next hundred years. And, I’m excited to see an independent Supercell continue to rise with great people and great games, delivering happiness to so many people around the world.”

This new partnership also takes our collaboration with our good friends at GungHo to the next level. We are super excited to have them participate in this investment by putting in 20% of the total amount. We’ve had a great collaboration between Puzzle & Dragons and Clash of Clans. They’re an amazing bunch of people, and they have a terrific culture. Through them we’ve come to learn that the Japanese and Finnish cultures are pretty similar on many levels. Not only when it comes to taking your shoes off before you enter someone’s home, but also and more importantly, when it comes to partying, if you know what I mean.

It may sound like a detail, but I should also mention that the company that will end up owning 51% of Supercell is incorporated in Finland. This is both exciting and important for me personally. Although our aspirations are global, our roots and future are very much in Finland. Our operations remain in Finland, our management team remains in Finland and in San Francisco, and we continue to pay taxes in Finland. I think more and more people in this country are realizing that there is life after Nokia!

Naturally, this transaction is great for us from an economic perspective. As many of you know, a big part of Supercell’s culture is the idea of “we are all in this together”. In line with this thinking, everyone at the company will participate in the upside and receive a portion of the proceeds from the investment. None of us work here just for of money, but when the company succeeds, everyone should get their fair share of it and this transaction is no exception.

Although we now have a major new investor in Softbank, it is extremely important to understand that we are still in full control of our future and will continue to operate independently. In fact, and this may sound surprising to some, I feel that with this deal, we’re now more independent and in control of our future than we ever have been.

Lastly, I want to thank our players, all the Supercellians, and everyone else whose support has been so valuable in getting us this far. We’ve had an amazing journey together, and it will only get more exciting in the years to come.

Thank you for reading this far. I know this was a lengthy post, but since this is such an important milestone for the company, I wanted to take the time to fully explain our thinking behind it and exactly what it means to all of you.

Now, let’s go make history together! Kippis! Kampai!