Acquisitions for gaming companies broke a new record last year, raking in $4 billion, an 18 percent increase from the $3.4 billion earned in 2011, according to recent research from Digi-Capital, the global investment bank.
Gaming investments, however, had a difficult year, tumbling 57 percent to $853 million. Transactional volume dropped 27 percent, and average transaction size dropped 60 percent. Though the total amount of mergers and acquisitions set record highs, it was due to fewer blockbuster deals, with most acquisitions going towards smaller companies that get swallowed up by bigger players, as sizable companies gain market control by buying up the little guys.
Multiplayer online games made up the largest portion of gaming M&A activity at 38 percent, followed by mobile at 27 percent, social and casual games at 18 percent, trailed behind by middleware, console and advertising. In comparison transaction volume was led by mobile at 28 percent, followed by MMO at 20 percent. Mobile led transaction volume at 28 percent, followed by MMO at 20 percent.
Gaming has gotten increased attention due to the early success of Zygna, whose rapid growth fueled attraction to the space. The gaming company’s fall from grace in the stock market as its price tumbled in the face of weak earnings have hindered the industry with smaller transactions. Still, gaming interest continues to grow, with a number of gaming companies earning a billion dollars in revenue off a single game. Lately, the gaming industry has come to rival the movie industry, as DCM’s Peter Moran confided in Red Herring. One of the firm’s brightest gems this year in its portfolio is Trion Worlds, which Moran thinks could earn several hundred million dollars in revenue this year.
Anticipated to be 55 percent of mobile and tablet app revenue in 2016, the Free to Play model continues to grow its share of the gaming market, and is expected to be 93 percent of app downloads in 2016.
The Asian market presents the lions share of buyers, with 70 percent of the largest gaming deals for the year made by Chinese, Japanese or South Korean buyers. Digi-Capital identified significant knowledge and relationship gap between Asian and Western markets. The report estimates that Asia and Europe could make up 87 percent of gaming revenues by 2015, with the largest going to China at 32 percent.
Digi-Capital expects the total gaming industry to reach $83 billion by 2015, with 57 percent of that going to online and mobile games, compared to 49 percent in 2012.