M&A, video games and the next big thing | Bryan Cave Leighton Paisner

When I heard in April that Sony had its sights on FromSoftware, the developers of the souls frankness and this year is much appreciated Ring of Eldenthe first thing I did was dust off the PlayStation and embark on my fifth attempt at dark souls. I have since defeated Gwyn, Lord of Ash, and a PlayStation executive has officially denied the speculation.

Unsurprisingly, this denial has done nothing to quell merger and acquisition rumors on Reddit wishlists and social media forums. Self-proclaimed insiders point fervently to Sony’s recent announcement that more studio acquisitions are planned for 2022, a year that has also given credence to these rumors.

Increase the volume and quality of transactions

The backdrop, of course, is that the first quarter of 2022 saw nearly US$100 billion in reported M&A activity in the games industry. Much of this deal volume can be attributed to Microsoft’s $68.7 billion deal for Activision Blizzard and Take-Two Interactive’s $12.7 billion deal for Zynga. There have also been a series of smaller, but equally notable deals in the mobile gaming space. One of the biggest stories this year was the New York Times’ acquisition of Wordle, a puzzle game with no revenue stream but access to a sizeable group of word-loving customers, that is- ie potential readers with whom The New York Times could associate. . Even after factoring in mega deals, in-game mergers and acquisitions are expected to continue to rise. Some commentators predict that the trading volume will exceed US$150 billion this year.

This prediction does not include deals in the broader, trillion-dollar technology and telecommunications space. This year, for example, we have seen M&A deals involving online gambling and casinos, data centers, cryptocurrency mining technology, mining and optimization processes, cloud management and chatbot developers. Many of these agreements have implications for gaming and the continued growth of the industry. When Nvidia announced its acquisitions of Bright Computing and Excelero, both of which specialize in high-performance computing, the gaming community expected there to be a positive impact on Nvidia’s gaming presence, including its range of portable consoles and its cloud gaming service.

Further expected consolidation

The drivers for further consolidation in the game are clear. In an industry where talent attrition is the norm, it makes sense for both conglomerates and growing software developers and vendors to avoid internal organic growth and instead opt for acquisitions and lending. purchase of instant capacity and market access.

More importantly, the gaming industry has traditionally been an incubator for innovation and concept development and, therefore, represents an entire ecosystem with countless potential business and commercial spin-offs. Virtual reality, now a mainstay and necessary corollary of the metaverse, began life as bulky headsets in labs and only gained commercial acceptance after years of installation and refinement in game studios. Virtual Earth in the Metaverse, whose sales topped $85 million in January this year, got its start in game simulations and only began to find traction with the advent of purchases in the game, cryptocurrency and the often misunderstood non-fungible token, or NFT.

Investors are beginning to recognize that gaming is a gateway to other industries, with the obvious beneficiaries being fintech, infrastructure, big data and real estate. It is precisely for this reason that gaming companies become attractive targets. Investors and traders are circling not just because these companies may have developed successful game franchises or next-gen hardware, but because their users and reputation within the gaming community represent a of markets which has not yet fully materialized. These are significant deals, not just in terms of deal value, but in terms of the transformation they can bring as investors search for the next big thing.

Invest in the Metaverse

The Metaverse, with the connected Internet of Things, has been approved for some time as the next big thing. And in some ways, it’s literally THE market. When Facebook became Meta, it was thought there would be a concerted push to create the infrastructure that would make an alternate world or digital economy a real possibility. When GameStop announced its own online marketplace for NFTs, it was recognized that the digital ecosystem could be a real revenue alternative for traditional brick-and-mortar businesses.

Obviously, there is still a long way to go before we get there. Fortunately, the building blocks of the Metaverse’s architecture are also the fundamentals that make video game companies attractive targets for mergers and acquisitions. Increasingly, we’re seeing deals being streamlined, and boards and investment committees being asked to sanction them, on the open secrets of the industry: (1) the move to revenue-based on subscriptions rather than volatile revenue streams dependent on one-time purchases, (2) live games where DLC, or new content, is added from time to time, (3) revenue longevity through question sequels and prequels, remasters and re-releases, (4) market diversification as gamers seeking portability and mobility seek to complement hardware with software, supported by the cloud, and (5) cross-industry proliferation growing as gaming makes inroads into other markets (e.g. introducing games to TV streaming platforms like Netflix).

And, to borrow Tolkien, the one ring that will tie them all together is cryptocurrency, heralded for so long as the universal solution that will support and underpin transactions in the metaverse. While by no means universally accepted, cryptocurrency is beginning to benefit from an industry-wide push to address volatility and security vulnerabilities in a meaningful and coordinated way. Investors have also been reassured that regulators, including the Financial Conduct Authority in the UK, have begun exploring ways to manage and regulate cryptocurrency trading.

And then ?

As long as these fundamentals remain, in-game mergers and acquisitions will continue. Independent houses and entrepreneurs will continue to seek partners and investors, while conglomerates and cash-rich investors will continue to seek consolidation opportunities across all sectors and products. What will be interesting to watch is if the platform for such mergers and acquisitions moves into the metaverse.

It’s already possible to buy a virtual home next to your favorite celebrity, so, for example, you could possibly live next to Paris Hilton or Snoop Dogg, both of whom have created virtual mansions in the metaverse where , by all accounts, hold remarkably well-attended parties. In a fully functioning meta-universe where money is perfectly fungible and different goods and services are portable between platforms and worlds, one could argue that it is entirely possible to establish, operate and to build a business or business and then sell that business or business. . That is, in short, M&A.

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