Interesting info about Online Game Investments

We’ve just published our Global Games Investment Review 2012, and you can read the free Executive Summary at www.digi-capital.com. The complete 102 page Review and individual game Sector Reviews (mobile/tablet, social/casual, MMO, console, middleware and advertising) are available to purchase at http://www.digi-capital.com/reports.html

We think the big story for games M&A and investment could be ConsolidationVille: Social Games 1.0 M&A in 2012, and highlights of the Review are below:

Games investment and M&A more than doubled in 2011

– Private placements grew value by 96% to $2B, volume by 67% to 152 transactions, average fundraising round size by 17% to $13M
– Together with Zynga ($1B+) and Nexon ($1.2B) IPOs, investment value nearly quadrupled
– M&A grew value by 160% to $3.4B, volume by 88% to 113 transactions, average transaction size by 38% to $30.4M
– Private placement and M&A activity led by social, mobile, MMO and middleware

Social Games 1.0 M&A in 2012 – exit or consolidate (or you might miss the boat)

– Social/casual dominated investment and M&A in 2011 (57% of private placement value, 45% of M&A value)
– Zynga IPO may be the high water mark for Social Games 1.0, as it becomes harder to keep social games social (i.e. user acquisition and retention)
– Digi-Capital analysis comparing total games portfolio DAU and average individual game DAU shows some (e.g. Wooga, King) but not all delivering in a crowded market
– Current sector dynamics and dealflow indicates 2012 could be the year for Social Games 1.0 consolidating M&A

Social-mobile and cross-platform are the next battlegrounds for games investment and M&A

– Mobile/tablet 2nd in transaction volume (30% private placement, 27% M&A) but not value (16% private placement, 4% M&A) as an early stage market
– DeNA (2011 >$1.4B revenue at 50% operating margin) and Gree (12 months to December 2011 >$1.4B revenue at 46% operating margin) show what investment in social-mobile games can deliver
– Mobile/tablet, social-mobile and cross-platform (iOS/Android/social network) attracting serious interest from both investors and acquirers

Free-to-play and new market entrants reinvigorating MMO M&A and investment opportunities

– MMO 2nd (31%) in M&A value due to large scale transactions, but only 4th (8%) in private placement value due to investment risk profile
– Nexon (>$1.1B revenue at 58% EBITDA margin in 2011) shows why the MMO market is moving towards free-to-play
– Consolidating M&A and investment opportunities through 2012 due to continued MMO market transition and growth

Asian consolidating M&A and investment hold great promise, but local knowledge and relationship gaps remain

– Strong Chinese, Japanese and South Korean games companies are looking for Western M&A and investments, but local knowledge and relationship gaps remain
– Similarly Western games companies are looking for strong Chinese, Japanese and South Korean partners, but face the opposite side of the same challenge
– By bridging relationships and different business/investment cultures, we’re finding this may become one of the dominant axes for games M&A and investment

Console giants must accelerate pivot to online/mobile

– Electronic Arts has led the way with blockbuster M&A of PopCap and Playfish, yielding synergies with Sims Social
– Other cash generative console/MMO publishers have a window of opportunity for online/mobile investments and M&A before it is too late to change

Middleware is the dark horse generating significant investment and M&A

– Middleware 3rd by value in both private placements (18%) and M&A (16%) despite being lower profile than consumer games sectors
– High profile M&A from non-traditional sources such as Visa’s acquisition of PlaySpan for $190M shows the potential for middleware investors/management
– Accelerating M&A and investment in online/mobile middleware driven by growth in underlying online/mobile games markets

From Tim Merel, Posted by Richard van Barneveld

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Governor of Poker is hot!

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