Take-Two to acquire mobile gaming giant Zynga for $12.7B

Huge consolidation is afoot in the world of gaming. Today Take-Two Interactive announced a plan to acquire mobile games giant Zynga, in a deal valued at $9.86 per share — $3.50 in cash and the remaining $6.36 in shares of Take-Two common stock. Zynga’s enterprise value in the deal works out to $12.7 billion.

The deal will bring together two gaming powerhouses, Take-Two in consoles and PC games (including such iconic titles as Grand Theft Auto) and Zynga in a massive swathe of mobile games, a genre that was arguably largely defined by the company (it’s behind FarmVille, Empires & Puzzles, Words with Friends and more).

The deal, Take-Two said, will result in $6.1 billion in 12-month pro-forma net bookings (ending September 30, 2021), making it one of the largest gaming companies overall, regardless of platform.

The transaction is expected to close in Q1 of fiscal year 2023, subject to shareholder and regulatory approvals.

“We are thrilled to announce our transformative transaction with Zynga, which significantly diversifies our business and establishes our leadership position in mobile, the fastest growing segment of the interactive entertainment industry,” said Strauss Zelnick, chairman and CEO of Take-Two, in a statement. “This strategic combination brings together our best-in-class console and PC franchises, with a market-leading, diversified mobile publishing platform that has a rich history of innovation and creativity. Zynga also has a highly talented and deeply experienced team, and we look forward to welcoming them into the Take-Two family in the coming months. As we combine our complementary businesses and operate at a much larger scale, we believe that we will deliver significant value to both sets of stockholders, including $100 million of annual cost synergies within the first two years post-closing and at least $500 million of annual Net Bookings opportunities over time.”

“Combining Zynga’s expertise in mobile and next-generation platforms with Take-Two’s best-in-class capabilities and intellectual property will enable us to further advance our mission to connect the world through games while achieving significant growth and synergies together,” added Frank Gibeau, CEO of Zynga. “I am proud of our team’s hard work to deliver a strong finish to 2021, with one of the best performances in Zynga’s history. We are incredibly excited to have found a partner in Take-Two that shares our commitment to investing in our players, amplifying our creative culture, and generating more value for stockholders. With this transformative transaction, we begin a new journey which will allow us to create even better games, reach larger audiences and achieve significant growth as a leader in the next era of gaming.”

Strauss Zelnick will lead the larger company, with Gibeau and Zynga’s president of Publishing, Bernard Kim, overseeing the larger mobile business (including integrating Zynga with Take-Two’s existing mobile operations).

As with a lot of other consolidation moves, this is about cost savings through synergies. Take-Two said the deal would help the larger business save about $100 million annually after two years (first will come integrations). Take-Two already has a number of mobile games titles and has expanded its franchises into mobile, but this will give the company a significantly larger holding in the space.

This is key, considering how Zynga has fared over the years. Since a huge boom in its share price when it first went public, the company has been on a bit of a roller coaster, and over the last year has seen its share price drop, making it an acquisition target.

The move also puts to an end an era of sorts. As a startup based out of San Francisco’s SOMA district just as the city was coming into its own as a tech hub separate from Silicon Valley, it was an early mover in spotting and scaling the mobile gaming opportunity.

Initially it found huge traction as a social gaming giant, leaning on growth by way of Facebook’s social graph, but as that became annoying and spammy, over time Facebook changed the rules and cut off Zynga’s audience supply. More generally, the mobile gaming market has proven to be a more precarious one when it comes to consumer tastes and usage, and so a lot of Zynga’s success has been banked around finding (and sometimes acquiring) the next hot new title and franchise to replace those that have waned in popularity. (One of its bigger recent acquisitions was acquiring, in 2020, Turkey’s Peak Games, which had already established traction with Toon Blast and Toy Blast, for $1.8 billion.)

Combining with Take-Two, which also publishes Red Dead Redemption, Midnight Club, NBA 2K, BioShock, Borderlands, Civilization, Mafia and Kerbal Space Program, will give it a large library of franchises and IP from which to build new mobile gaming experiences. Similarly, Zynga’s IP may now find new traction in different formats and different screens.

What is interesting is whether and how the larger company will use its expanded content IP to think about how it engages with the market at large. These days so much action in gaming happens more on the platforms where people meet to discuss games and be social with each other, whether that is over Twitch, Discord or somewhere else.

The gaming market has seen a huge surge of attention in the last couple of years, as one of the “winners” in the wake of the COVID-19 pandemic with more people looking for diversions while staying put at home.Take-Two quoted figures that said overall the mobile gaming industry saw $136 billion in gross bookings in 2021 and is growing currently at 8%. Mobile will now account for half of Take-Two’s bookings, it said.

More to come…