Games industry M&A across all sectors hit another record this month, topping $25 billion in total between January and July 2016 with the latest $4.4 billion acquisition of Playtika by a Chinese consortium led by Giant. This is yet another sign of late stage games market consolidation, as we forecast games software revenue growth for the games market as a whole slowing to 7% CAGR from $91 billion in 2016 to $116 billion by 2020. Combined with changing growth rates across different games sectors, there could be more big acquisitions before the end of the year.
The record was driven by a handful of major deals, including the $8.6 billion acquisition of 84.3% of Supercell by Tencent (OTCPK:TCEHY) (at a $10.2 billion valuation), King's $5.9 billion acquisition by Activision-Blizzard (NASDAQ:ATVI) (announced 2015, closed 2016) and the $1.8 billion M&A of Perfect World by its listed film counterpart (after the games company delisted in 2015). Other substantial deals include the China Mobile Games & Entertainment Group (NASDAQ:CMGE) reverse merger in China (after its delisting from Nasdaq) and Vivendi's (OTCPK:VIVHY) acquisition of Gameloft.
After last year's games ice age saw deals drop by 81%, games M&A to July 2016 is up over 12x compared to the rate of deal making in 2015. If Vivendi's increased stake in Ubisoft leads to a deal by year's end, M&A for 2016 could top $30 billion and more than double the previous record from 2014.
So what is driving massive consolidation of mobile games?
Gotta catch 'em all
The different parts of the games industry are growing (or shrinking) at different rates driven by changing user behavior and spending. Digi-Capital forecasts mobile games revenue growth of 8.1% CAGR from $35 billion in 2016 to $48 billion by 2020, MMO/MOBA games revenue growth of only 5.2% CAGR from $24 billion in 2016 to $30 billion by 2020, as standalone console/PC games software revenue shrinks at -3.8% CAGR from $24 billion in 2016 to $21 billion by 2020.
In that context it makes perfect sense for Tencent to buy Supercell, Activision-Blizzard to buy King Digital and the Giant consortium to buy Playtika. In each case the buyer is rebalancing their business with more exposure to the largest of the games growth markets in mobile. That said, the highest growth markets from a small base are VR/AR games to $10 billion by 2020, plus eSports at a much smaller scale. So as well as more mobile consolidation, games acquisitions could shift more toward the highest growth VR/AR sector in the next 12 to 18 months.
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