Massive Games Investment, M&A, Stock Market Rebound

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Includes: ATVI, CMGE, NTDOY, TCEHY, UBSFF, VIVHY
by: Tim Merel

Summary

So far this year games investments have hit $1.6 billion, mergers and acquisitions $25.7 billion, with our global games stock market index up 17% in the last 12 months.

The games market is firmly in consolidation mode, driven by large scale acquisitions by market leaders.

After 2015's worst games deals market in a decade, the rebound so far this year has been unprecedented.

Our Games Report Q3 2016 found that games investments, M&As and stock markets have delivered a massive turnaround after last year's games deals ice age. So far this year games investments have hit $1.6 billion, mergers and acquisitions $25.7 billion, with our global games stock market index up 17% in the last 12 months. After 2015's worst games deals market in a decade, the rebound so far this year has been unprecedented. If Netmarble's proposed IPO ends the games IPO drought of the last two years, 2016 could be the largest single year for games deals in history.

The games market is firmly in consolidation mode, driven by large scale acquisitions by market leaders. After the go-go years of social games and mobile games, slowing topline industry growth and increasing competition has the largest players adding strength in established markets or pivoting to mobile games as that sector's dominance continues. The largest M&A deals this year have included 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 (NASDAQ:CMGE) reverse merger in China (after its delisting from Nasdaq) and Vivendi's (OTCPK:VIVHY) acquisition of Gameloft. Another potential large scale acquisition on the horizon is Vivendi/Ubisoft (OTCPK:UBSFY), although that remains unresolved.

Investment growth also has been driven by large scale deals, although the actual number of investments in games continues the long-term decline it has suffered since the high point in 2014. Large deals have included Huayi Brothers $288 million investment in eSports company Hero Entertainment, games streaming company Douyu TV's $226 million, games engine provider Unity's $181 million and games hardware maker Razer's $75+ million round.

Finally the games stock market has also shown significant growth, with Digi-Capital's global all games index up 17% in the last 12 months. The strongest performance by sector came from publicly listed console games companies, including the resurgent Nintendo's (OTCPK:NTDOY) bounce driven by the outsize performance of its mobile AR game Pokémon Go and anticipation of what the Super Mario maker could achieve more broadly. A significant factor could also be anticipation of more large scale M&A deals as the market continues to consolidate around strength.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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