Game acquisitions accelerate in 2013 to $3.3B as Asia and mobile get hotter

Both game acquisitions and investments are up because Asian game companies are moving aggressively into the sector, according to a quarterly report by investment bank Digi-Capital.

Above: Game investments are picking up.

Image Credit: Digi-Capital

Acquirers led by Asian game companies spent more than $3.3 billion through the end of the third quarter, meaning that much was spent on deals in the first nine months of 2013.

M&A value rose 1 percent from a year ago, compared to the first nine months of 2012. The average size of deals grew 12 percent to $45.8 million.

Eight of the 10 largest game deals were launched by Chinese, Japanese, or South Korean buyers. Asian game companies have invested heavily in digital game markets, and they have high revenue growth, profitability, and good valuations in the core domestic markets. The Asian companies are buying other companies at valuations that are multiples higher than comparable Western counterparts.

Game investment value grew to $876 million to date through Q3, up 35 percent from the same period in 2012. In other words, investors put $876 million into game companies in the first nine months of the year, up 35 percent from the first nine months of 2012.

So game investments may be up this year but will likely be well below the $2 billion raised in all of 2011. So far this year, there have been 132 transactions, up 6 percent from the same period in 2012. Average investment size is up 26.9 percent to $6.6 million. Mobile games are 42 percent of investment value and 38 percent of investment volume. Tech/gamification is 36 percent of investment value and 33 percent of investment volume.

Mobile games accounted for 47 percent of the M&A value and 29 percent of the M&A volume. Technology and gamification deals accounted for 27 percent of the M&A value and 15 percent of M&A volume.

“If this trend continues through Q4, we could be looking at another record year for M&A in games,” said Tim Merel, the managing director of Digi-Capital. Merel will be one of the speakers at our GamesBeat 2013 event on Oct. 29-Oct. 30 in Redwood City, Calif. “Deep Asian relationships are now critical for investors in games companies considering exits.”

Above: Games are a bigger portion of mobile app downloads.

Image Credit: Digi-Capital

Gartner is forecasting that mobile app revenue will grow five times from $15 billion in 2012 to $70 billion in 2016. Games account for about 70 percent of global app revenue.

By 2016, China is expected to account for 32 percent of online and mobile game revenue. South Korea will be 12 percent, and Japan will be 10 percent. In the past year, Digi-Capital said that Asian tech, media, and telecom companies have been acquiring mobile games and tech companies as part of a way to deal with disruption in the mobile ecosystems.

“Many Asian companies are looking to invest in or acquire Western mobile games companies to leverage in domestic markets, or globalize themselves to publish Asian mobile games in Western markets,” Merel said. “Relationships and market knowledge remain a challenge, particularly for those Asian companies looking for high-quality Western deal flow. As with other advanced trends from Asia, we anticipate similar moves by Western companies in the next 12 to 18 months.”

Among the other data in Merel’s report:

— Mobile games are 43 percent of mobile app usage on iOS and Android and 67 percent of tablet usage.

— Games are 72 percent of mobile app revenues in 2013, compared to 40 percent in 2010. Games are 40 percent of mobile app downloads.

— Mobile games monetize four times more effectively than all other mobile app categories combined.

— Mobile and online games could help grow the total video game market to $83 billion in 2016. Of that amount, mobile and online games will be $48 billion.

Above: Tim Merel

Image Credit: Digi-Capital

— After Zynga’s IPO and struggles in the market, many venture capital investors have exited the games market.

— There’s a gap between investment demand and supply. Capital markets are not pouring enough money into the game business, particularly given the potential of mobile games.

— Asian game companies are priced higher than Western game companies.

— The console game market declined has continued despite the Wii U’s launch, but the PlayStation 4 and the Xbox One could revitalize the market.