Mobile dominates new game sector investments in Q1

Mobile games have come to dominate investment in new game companies, according to a report compiled by investment bank Digi-Capital on first-quarter investments.

Digital games (or “connected games,” as Digi-Capital calls them) continue to grow as a category in both mobile and online, with the highest rate of investment happening in high-engagement mobile and tablet games. Mobile and tablet accounted for more than 80 percent of value of game industry investments.

Above: Q1 game investments are mostly in mobile

Image Credit: Digi-Capital

“The top line is that there is a significant connected games investment gap, despite strong underlying growth, exits, and returns,” said Tim Merel, managing director at Digi-Capital, which tracks the game market and handles investment banking for the sector. “It’s something we’re looking at very closely.

Rumors of big investments are circulating. Supercell, maker of Clash of Clans (pictured above)  is reportedly raising more than $100 million at an $800 million valuation.

Merel said that the game investment market has stabilized at levels that are similar to 2012, after a dramatic 56 percent decline from 2011 levels. Investments are happening in mobile/tablet games, enabling technology (such as game middleware), and gamification. Game mergers and acquisitions were robust in the first quarter, non-U.S. acquirers accounting for six of the top 10 game M&A deals this year.

Overall, despite the decline in console game sales, Merel is optimistic for the overall sector. Game revenues are expected to grow to $83 billion in 2016, with 55 percent of that, or $48 billion, coming from mobile and online games.

Q1 2013 investment in games grew 35 percent by value to $191M and declined 4 percent in the number of transactions (40). By value, mobile/tablet game companies dominated with 65 percent share of all game investments in Q1. Enabling technology and gamification accounted for 24 percent. In terms of the number of deals, mobile and tablet game companies were 38 percent, with enabling technology and gamification at 35 percent.
The average transaction size increased 35 percent to $7.3 million. By contrast, average transaction sizes declined last year. Digi-Capital reported that game M&A was above $4 billion in 2012. On a pro-rata basis, Q1 M&A declined slightly by 7 percent in value to $973 million. It grew 33 percent in volume to 28 transactions. Console, PC, mobile/tablet, and massively multiplayer online games accounted for most of the M&A transactions by volume, with average transaction value falling 30 percent for M&A deals to $34.7 million.

Merel figures that game companies are on a two-year cycle for initial public offerings, with the last major IPOs happening in 2011. A fresh round might happen again in 2014, he believes.