Mergers and acquisitions in the games industry are picking up after "an extended quiet period," according to a new third-quarter report from Drake Star Partners.
Why it matters: Consolidation will make gaming's giants even bigger.
- But it also brings the risk of further job cuts in an industry racked by layoffs this year.
- By the sheer number of deals, that was a two-year low. But the deal value exceeded three of the last five quarters, when all the deals tallied in each period totaled less than $1 billion.
- M&A deals for 2023's third quarter included mobile gaming firm Playtika's purchase of Youda Games and Innplay Labs for around $450 million as well as the successful $1.7 billion offer led by Goldman Sachs to take educational gaming platform Kahoot private.
- Drake Star also counted nearly $1 billion in private investment for the quarter, up from the spring. Investments were primarily in PC, console or blockchain companies.
- Metzger anticipates Tencent, Sony, Take-Two and Savvy/Scopely will be the most active buyers in 2024, while the Embracer Group is expected to divest more studios.
- Public companies, including Nintendo, EA and Nexon, are sitting on $45 billion in cash and cash equivalents, setting up the potential for more M&A, according to venture capital firm Konvoy Ventures.
- That bleak climate has come despite expectations by analysts that the gaming industry is returning to growth following a post-lockdown correction.
- "While it is true that it is harder for founders to raise an early stage round and even harder to raise a growth/late stage round compared to 2021, it is also true that we have never had more gaming-focused VC funds than now," he says.
- He pointed to Bitkraft, A16Z's gaming fund, Play Ventures, Griffin Gaming, Vgames and Makers Fund as examples, and said "several of them are in the process of raising follow-up funds."
- "Valuations have come down, but that also makes it more attractive for VCs to invest now in the future unicorns."