2012 game acquisitions at an all-time high

M&A deals are up, but investments in gaming are down

Game mergers and acquisitions have set a record in the first three quarters of the year, investment bank Digi-Capital said in a report Sunday, already breaking the record set in 2011.

The pace of the gaming industry’s M&As for 2012 have already delivered 105% of the entire transaction value of 2011 and the run-rate is 40% higher year to year, Digi-Capital Managing Director Tim Merel said in the report.

A large part of the M&A activity has been spurred by Asia, as Chinese, Japanese and South Korean companies were responsible for six of the top 10 M&A transactions.

2011 had been a record year, seeing 113 transactions, which generated $3.4 billion, an average of $30 per transaction. This year alone has seen 71 transactions, which have been worth $3.6 billion. That averages out to $51 million so far, with three months left to go in the year.

While the deal value this year is 40 percent higher, it is also 16 percent lower by volume than 2011 due to fewer, larger M&A deals.

MMO, mobile, social/casual and middleware games make up the majority of transactions, and Digi-Capital expects this trend to continue through the rest of the year.

“Our largest Chinese, Japanese and South Korean clients are particularly focused on M&A and investment in mobile-social, free-to-play MMO and middleware to leverage their strengths both domestically and internationally,” said Merel.

“Our large U.S. and European clients are fishing in a similar waters, but bring different strengths to the table. For the strongest independents who we work with, the accelerating M&A market is prompting some to consider their strategic options.”

Investments in gaming

While gaming acquisitions are up, though, investments are down.

2011 was also a record year for gaming investments, with 152 transactions generating $2 billion, at an average of $13 million. 2012, however, has seen 130 transactions generate $591 million, an average of $4.5 million.

Transaction volume is up by 14 percent for the year-to-date through the third quarter, but the transaction value is down by 60 percent.

“Should this trend persist, games investment for 2012 might return to the still respectable levels of 2010 (the second highest year),” Merel said.

Middleware, mobile and MMO made up most of the transactions, so the decline in transaction value comes almost entirely from social/casual games, which accounted for 57% of transaction value, and 32% of transaction volume, in 2011 but only 8% of transaction value and 11% of transaction volume in the third quarter of 2012.

Zynga’s initial public offering was the high-water mark for investing in social gaming, said Merel, and now venture capitalists have moved away from that sector and toward mobile game investments.

“It could be interesting to see if emerging games investment and M&A trends continue through Q4 2012, and how they play out for what we anticipate could be a fascinating 2013,” Merel said.

Some 2012 gaming acquisitions

Last week, free-to-play game company Nexon creator of the game MapleStory, acquired Japanese game developer gloops.

In September, Scopely, a social, mobile game publisher, announced that it raised $8.5 million in financing from a slew of angels and VCs, and Zynga purchased midcore games developer A Bit Lucky for an indisclosed amount. This was Zynga's second acquisition this year after it  bought OMGPOP for its popular social game Draw Something for $200 million in March.

This past May, Gree bought Funzio, a mobile gaming company, for $210 million, and then announced that it has purchased mobile game developer App Ant Studios, creator of Dino Life for Android, in September.

IGT purchased Double Down  for $500 million in January. Double Down was estimated to be generating $50 million a year in revenue. In March, Big Fish Games bought Self Aware Games for an undisclosed amount.

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