On The Eve Of GDC, An M&A Wave Hits the Gaming Industry

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Unity and Applifier, the Kontagent and Playhaven merger, Zynga’s half-billion dollar deal to buy NaturalMotion, Kabam and Phoenix Age.

A nice, little consolidation wave is floating through the gaming industry after a relatively quiet year for acquisitions among companies in the U.S. and Europe.

What’s changed?

It depends on which part of the industry you’re looking at. Half of these deals are for individual game developers and the other half are for game development tools.

On the studio side, mobile gaming is now incredibly mature. We have at least two companies that are clear IPO candidates like King, which definitely filed, and Kabam, which has been a subject of speculation for years and is aiming for $650 million in sales this year. There are now clear winners, like Supercell, which sold a little more than half of itself in this biggest deal of last year to Japanese carrier Softbank and Gung-Ho Entertainment and made roughly $900 million in revenue last.

“It’s not an open greenfield anymore,” said Jussi Laakkonen, who decided to sell Applifier to Unity Technologies, which is behind a popular gaming engine. “The stakes are getting higher.”

Some buyers, like Kabam, are looking for ways to beef up and diversify their portfolios ahead of a possible offering. Others like, Zynga, had hit the pause button and are now re-emerging again on the M&A market. After the disastrous $180 million OMGPOP acquisition and a change in leadership with former Xbox executive Don Mattrick taking the helm, the company seems ready to look around again.  

On the seller side, some mid-size companies are deciding cash in their chips rather than slog it out independently. Unlike other kinds of tech companies, mobile gaming companies can generate decent cash flow while remaining profitable for months or years. That’s why there are still so many independent entities, who will likely stay that way.

Yet as marketing costs tip over into the millions and tens of millions of dollars per month, it’s getting harder for new or smaller developers to break through. King alone spent $376.9 million on sales and marketing last year, according to its IPO filing. With those kinds of barriers to entry, some studios like Phoenix Age or Natural Motion are deciding it’s better to leverage the marketing budgets and technical infrastructure of larger parent companies. While Phoenix Age was bootstrapped, NaturalMotion had raised two rounds led by Benchmark and Europe’s Balderton Capital.

On the development tools side, there are basically just too many SDKs. Middleware companies are asking gaming studios to incorporate all kinds of advertising, cross-promotion, analytics and virtual currency SDKs.

“It’s hard to cut through the noise when you’re battling so hard,” said Andy Yang, who led gaming monetization company Playhaven and analytics startup Kontagent through a merger a few months ago. “There was a big push from customers to have a more unified offering.”

Laakkonen said he didn’t have any financial pressures to sell Applifier to Unity, since the company’s video replay network growing nicely after a tough year or two where they had to pivot the company from the Facebook platform to mobile.

Now Applifier, which lets gamers share video replays of their best moments, will be offered as part of the Unity engine. While not requiring it for all Unity developers, the company’s CEO David Helgason wants it to be a choice as easy as clicking a checkbox.

“Our customers want more fully featured products,” Laakkonen said. “They want solutions instead of piecemeal approaches.”