Gaming UNION SQUARE ADVISORS LLC

Transcription

1 Gaming

2 Key Themes in the Gaming Industry The Gaming Paradigm Shift Users Can Trump Revenue The Overlooked Importance of Casual It s All About the Whales Free-To-Play Frustration? Cross-Platform Games-as-a- Service Real Money Gambling and Social Casino Gaming s shift to online continues, driven by the increasing number of connected devices and distribution platforms, as well as the rising utilization of virtual goods Today s leaders employ powerful game mechanics while leveraging ancillary monetization opportunities to create highly profitable business models Recent notable gaming transactions have been driven by user bases in addition to revenue, and some have been solely user-driven With their mass market appeal, casual games have enabled new gaming demographics and represented some of the highest value transactions Games aimed to monetize through Whale spending are the most valuable in the industry With recent social gaming success stories exhibiting metrics-led design and sometimes overt monetization mechanisms, we ask the question: Are gamers getting frustrated with Free-to-Play ( F2P )? The popularity of persistent worlds coupled with the proliferation of mobile gaming platforms will increase the need for games to be delivered as a service and accessible anywhere Online Real Money Gambling ( RMG ) represents a significant call option for casino operators and social game developers alike Casino operators and social game developers represent two completely different skillsets this dichotomy will be a key M&A driver in the mid and long term 2

3 Macro Trends in Gaming Few players have been able to effectively serve both the online and mobile markets. Many that have done so successfully have entered the market via acquisition Most mobile successes are in Casual Console Publisher Online and Mobile Casual Online Development MMO/RPG/RTS Hardcore Services & Tools Monetization Payments Mobile Analytics Challenges for hardcore mobile offerings are short session times, screen size, processing power and user behavior. Most successful hardcore mobile games are simple RPGs with low graphics intensity Developer Platforms Hardware The majority of the hardcore online landscape does not have the capabilities or desire to move to mobile Notable players moving towards mobile are Zynga, Kabam, Cmune, InXile and Spacetime Studios 3

4 Key Trends in Gaming M&A Mobile and Social Have Been the Focal Points of Activity Mobile and Social represent 48% of all gaming M&A since 2010 Mobile alone represents 25% of Gaming M&A year to date in 2013 and 28% in 2012 Console M&A has been largely absent since 2010 as recent gaming start-ups have focused on emerging gaming platforms Historical Gaming M&A by Sector (1) Strategic Deals Have Commanded the Highest Multiples 2010 and 2011 both saw revenue multiples of 10x and higher, led by the likes of Disney / Playdom, DeNA / ngmoco, and EA / Popcap Profitability, user base, and tech platform are key value drivers GREE s acquisition of OpenFeint and Zynga s acquisition of OMGPOP underscore the importance of users and platform in the context of valuation YTD The Buyer Universe is Evolving EA and Zynga have done 15% of all Gaming deals since 2010 Absent are Activision and Disney, both historically acquisitive While GREE and DeNA have made several strategic buys in mobile, we expect Kabam, Nexon and Tencent to become more active here With Gaming a key pillar in the digital economy, we expect Google, Microsoft, IAC, and Amazon to become increasingly active Other Gambling Console/PC Technology MMO/Online Social Mobile 2013 Gaming M&A by Sector 10% 25% Struggling console players who have valuable IP may be lowvaluation targets for EA and Activision 21% What s Next? Mobile acqui-hires will subside as historically active acquirors (EA and Zynga) focus on in-house talent and acquired franchises Online gambling M&A will surge as regulatory frameworks change Over the mid and long term, as states legalize online gambling one by one, Real Money Gambling M&A will represent a growing percentage of deal volume 11% 25% 8% Mobile Social MMO/Online Technology Console/PC Gambling (1) Data shown on a number of transactions basis since many values are undisclosed 4

5 Select Gaming M&A Acquirer/Company Details Playcrab (1) January 2014 $527MM (2) October 2013 $3,000MM July 2013 $325MM July 2013 $112MM October 2012 $174M October 2012 $470M July 2012 $380MM May 2012 $210MM March 2012 $210MM (2) January 2012 $415MM (2) Commentary NaturalMotion uses next-generation technology and tools to develop and market high quality mobile games and products With the acquisition, Zynga bolsters its mobile presence with an expansive portfolio of current and upcoming mobile games, a strong character IP in Clumsy Ninja, with extraordinary franchise potential, and brings proprietary technology and tools that will catapult Zygna s mobile development capabilities Supercell provides ios-based free-to-play mobile games for consumers with popular titles like Clash of Clans and Hay Day SoftBank invested $1.53BN for 51% of Supercell, acquiring control of the Company at a $3BN valuation Following the transaction, Supercell will become a subsidiary of SoftBank, but will continue to operate independently Supercell will be able to leverage SoftBank s significant strategic resources to help grow its user base Playcrab develops mobile games for the Chinese audience Ourpalm plans to consolidate its foothold in R&D, distribution, and operations in the mobile and web game sector following the acquisition of Playcrab Backflip designs and develops ios and Android games With the acquisition of Backflip, Hasbro is now able to expand its brands into all forms and formats Backflip will now have access to an even stronger brand catalog, and can utilize Hasbro s valuable IP in future titles Pokelabo develops mobile action and sports-themed videogames for ios and Android users in Japan GREE will bolster its arsenal of first-party games for the Japanese market GREE continues to balance dominance in Japan with U.S. and Europe market growth Gloops is a leading developer of mobile games for DeNA s Mobage platform in Japan The acquisition accelerates Nexon's mobile strategy, giving the Company immediate exposure to Japan s large and fast growing mobile market Gaikai operates a content delivery network that streams videogames and related advertisements to mobile devices, computers and TVs for video game developers, consumer electronics manufacturers and telecom service providers By combining Gaikai s engineering talent with Sony s extensive platform experience, Sony will provide users with robust and exciting cloud gaming experiences Funzio develops crime and war simulation videogames for Facebook, Google, Android and ios users globally GREE continues to leverage the secular trend of smartphone growth to expand its global reach The acquisition will enable GREE to capitalize on the success of Funzio s existing titles and develop new genres of global games with Funzio s talented team OMGPOP develops online and mobile games, most notably the mobile hit Draw Something, which boasted 10.8MM daily active users prior to OMGPOP s acquisition by Zynga Zynga can plug its existing monetization expertise into OMGPOP s game catalogue, while simultaneously cross-promoting existing IP to OMGPOP s vast user base Double Down Interactive provides an online casino for Facebook users Leveraging IGT's global reach and best-in-class content will help accelerate Double Down's growth trajectory The acquisition launches IGT into a leadership position in social gaming and extends its global reach through new mediums Source: 451 Group, Capital IQ, Company Press Releases (1) Deal Value equates to Enterprise Value unless otherwise stated 5 (2) Includes earnout adjustments

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