High growth Mobile and Asia drove games M&A to record $3.3B to Q3 2013

Digi-Capital has published the Q3 2013 Update of its Global Games Investment Review.

Commenting on the Review, Digi-Capital Founder Tim Merel said:

“It’s no secret that mobile Internet is disrupting technology markets, with Gartner forecasting that mobile apps revenue will grow 5x from $15B in 2012 to >$70B in 2016. With over 70% of global apps revenue from games in 2013, and forecasts that Asia will dominate global mobile/online games revenue (China 32%, South Korea 12%, Japan 10% by 2016F), mobile and Asia continue to drive games growth going forward.

Global mobile games/apps revenue ($B)

In that context, games M&A value to Q3 2013 grew by 1% proportionally from 2012 to $3.3B, with average deal size growing 12% to $45.8M. Games M&A was dominated by mobile (47% M&A value, 29% M&A volume) and tech/gamification (27% M&A value, 15% M&A volume). If this trend continues through Q4, we could be looking at another record year for M&A in games.
Global video games investment (ex-IPOs) ($M)

 Sector M&A to Q3 2013

Following a similar pattern to 2012, 8 of the 10 largest games M&As to Q3 2013 were made by Chinese, Japanese or South Korean buyers. With high revenue growth, profitability and valuations from core domestic markets, the major and emerging Asian companies have been buying quality games businesses at home and abroad at valuation multiples higher than their Western counterparts. Deep Asian relationships are now critical for investors in games companies considering exits.

Changing Pyramid of potential consolidators

In the last 12 months there has also been a trend for Asian technology, media and telecoms companies to acquire mobile games and tech companies, as part of their defensive and growth strategies to deal with mobile disruption. Many Asian companies are looking to invest in or acquire Western mobile games companies to leverage in domestic markets, or globalise themselves to publish Asian mobile games in Western markets. 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 12-18 months.

In contrast, games investment value to Q3 2013 recovered by 35% proportionally to $876M after 2012’s decline, but remains well below the $2B record from 2011. Games investment volume to Q3 2013 grew by 6% proportionally from 2012 to 132 transactions, with average investment deal size up by 26.9% from 2012 to $6.6M. Mobile games (42% investment value, 38% investment volume) and tech/gamification (36% investment value, 33% investment volume) again dominated to Q3 2013.

Changing Pyramid of potential consolidators

Since 2012 institutional and corporate investors have struggled to take advantage of the high growth, profitability and returns in mobile games, with a major gap between investment demand and supply. At Digi-Capital we see around 1,000 deals annually across America, Asia (China, Japan, South Korea) and Europe, so we’re working on specific ways for corporate and institutional investors to crack the code of mobile. It’s too big a challenge and opportunity to ignore.”