M&A in Gaming

M&A in Gaming

Over the last few weeks, there have been several acquisitions that are worth noting. In video gaming, there is not only a pullback in valuations but a simultaneous surge in gaming activity. This is a unique opportunity that is attracting the M&A attention of many large companies like Facebook, AppLovin, Unity, Apple, and Nvidia.

Key takeaways:

1) Tech that supports the infrastructure of gaming is in high demand

2) Facebook is quickly commanding a strong position in all-things gaming

3) Gaming companies will consolidate during this recession

4) AR/VR tech is attractive to engines (Unity) and hardware (Apple)

5) Some corporates are raising capital simply for an acquisition war chest

Nvidia: they just bought Mellanox for $7B, which concluded this past week. The acquisition combines Nvidia's graphics processing unit, or GPU, computing platform with Mellanox's high-speed interconnects. Data centers, which are a key part of the future of cloud gaming, are Nvidia’s largest growth driver (31% of Q4 sales). Mellanox’s technology will allow for greater connectivity and further Nvidia's ambitions in and around the infrastructure of cloud gaming. Nvidia’s stock price hit an all-time high this week on the back of this acquisition, up 41% YTD.  

AppLovin: they just bought Machine Zone for ~$500M today. If you’re not as familiar with either company, AppLovin is a mobile games company that fuels many of the world's most popular mobile games through its game studios and marketing technology. They have raised $1.4B in funding, with their most recent $400M coming from KKR at a ~$2B valuation. Machine Zone, the mobile gaming platform that pioneered bringing the free-to-play, massively multiplayer online (MMO) game genre to mobile, has a track record of delivering some of the world’s most successful mobile games. At its peak, Machine Zone was valued at $5B in 2016 yet this acquisition is rumored to be at around $500M (Bloomberg). In this market environment, gaming companies will continue to buy accretive technologies at rational price points.

Facebook: they just bought Giphy for $400m today. They plan to incorporate this into Instagram and I fully expect them to also integrate it into their social tools around Facebook Gaming. This acquisition comes on the back of their acquisition of Sanzaru Games (VR studio, for the Oculus platform) back in February and their acquisition of PlayGiga (cloud gaming) back in December of 2019. Facebook is continuing to heavily invest and acquire companies that support their efforts in and around video gaming (Giphy in social interactions, Sanzaru in VR content, and PlayGiga in cloud gaming).

Unity: they just bought Finger Food Advanced Technology Group last week (undisclosed amount), a 225 person team in Vancouver that specializes in AR/VR technology services. A Unity spokesperson said, “Through the acquisition of Finger Food, Unity’s enterprise customers will have a suite of professional services at their fingertips and immediately create in real-time 3D without needing to ramp up on internal expertise, retraining or upending established processes.” Unity is not only looking to support game developers but also enterprise clients who want AR/VR solutions.  

Apple: they just bought the startup NextVR (likely for ~$100M), who provide live content, such as sports and concerts, for VR headsets. Naturally, this same technology can be used for the viewership of gaming events, esports, and streaming. It will likely play a part in their efforts around Apple Arcade.

Keywords Studios: they just raised ~$123M to fuel acquisitions during this economic climate. Keywords said that while the coronavirus pandemic had increased the amount of video game playing, driving continued demand for content and for its own services, there was an opportunity for it to “leverage its position as the market leader to continue its acquisition strategy of high-quality businesses, increasing scale and capability and further accelerating growth”. I believe this is the mindset of quite a few M&A teams at larger corporates right now.