Digital Development Management’s newly released report on financial activity in the video gaming sector is a mixed bag, showing a decline in mergers and acquisitions, IPOs, and investments in the second quarter of this year, but noting that the market is likely to heat up in the months ahead.
Investments
DDM counted $0.7 billion in total gaming investments for April, May, and June of this year, compared to $1.0 billion for the first quarter – a 33.7 percent decline. The first quarter returned 147 deals, compared to 127 in the second quarter – down 14 percent. However, the report – titled Games Investment Review, and published every quarter – notes that these returns are consistent with the time of year, comparing well with other second quarters in recent years.
The most active sectors by value were technology (24 percent), followed by mobile and esports (19 percent each), mobile cloud gaming (18 percent) and console / PC (15 percent).
Notable deals include the $50 million secured by metaverse gaming company Everdome in April, invested by GEM Digital; $48 million raised by in-game advertising outfit Anzu, and blockchain gaming firm Mythical Games adding $37 million to its war chest, thanks to a Level C investment round led by Scytale Digital.
Other companies that attracted investment include esports production company Nodwin Gaming ($28 million), mobile MMO developer Madngine ($22.5 million), and blockchain infrastructure service provider Transak ($20 million)
Blockchain investments were down to $127 million compared to $143 million in the first quarter. The report noted that investors are showing “caution” within the sector. Still, Web3 gaming investors were the most active, including Polygon, Bitkraft Ventures, and Animoca Brands.
Mergers, acquisitions, and IPOs
Mergers and acquisitions reached $108.4 million across 31 transactions, down 80 percent in value and 25 percent in volume compared to the first quarter’s $565 million across 41 transactions. This is the lowest return since the second quarter of 2013.
North America was the most active region (50 percent), followed by Europe (39 percent), and Asia (6 percent). The console and PC sector saw a 38 percent share of activity by value.
The biggest deals by value include MOBA Network’s $53.6 acquisition of games data analytics platform Wargraphs in late May; Atari’s $19.5 million purchase of developer Nightdive Studios – best known for remakes of classic games like System Shock – and Keywords Studios $15 million purchase of console game developer Hardsuit Labs.
Larger studios – those employing 21 to 100 people – took three quarters of the deals.The median sized studio that took investment was 11 people. Game developers’ share of investment value increased to nearly two thirds by value, and three quarters by volume, mainly from early stage funding.
It was an especially quiet quarter for Initial Public Offerings, with the only major event being VRFabric a Polish VR game developer and porting service provider, which debuted on NewConnect with a market capitalization of $11.4 million.
DDM noted that “market capitalizations are remarkably down with IPOs being driven by small companies on foreign stock exchanges”.
Other trends
DDM noted that the “crypto winter” continues to cast a shadow, exacerbated by the SEC’s regulatory clampdown, which is “making investors nervous”. Investments have crashed since last year’s peak, and are down 38 percent in value since the first quarter.
But the report details plenty of reasons for overall optimism, including a slew of positive financial returns for gaming companies, including from Activision / Blizzard, up 35 percent for the quarter, Embracer Group up 121 percent for the year, and Take Two Interactive, up 53 percent for the year.
Additionally, this quarter saw Microsoft win its FTC antitrust case, enabling the company’s $68.7 billion acquisition of Activision Blizzard to be approved in the United States, a deal that is likely to come to full fruition in the months ahead.
Other deals in the offing include Savvy Games Group’s $4.9 billion acquisition of mobile game developer and publisher Scopely, as well as Sega’s $776 million acquisition of mobile game developer Rovio – best known for global smash Angry Birds – which was completed a few days ago.
Sega’s acquisition marks an aggressive expansion into the mobile market. Haruki Satomi, president and CEO of Sega, commented: “Among the rapidly growing global gaming market, the mobile gaming market has especially high potential, and it has been Sega’s long-term goal to accelerate its expansion in this field.”
Concluding its report, DDM stated that the second half of this year could be a record breaker, but cautioned: “The first half of 2023 was down significantly compared to recent years. In fact, the low performance of a similar half year has not been recorded since the first half of 2016.”
You can download a free sample report here, with purchase options available for deeper data and analysis.
