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Master the Meta: Why Electronic Arts is acquiring Glu Mobile

The MTM team explains EA's decision to snap up Glu for an eye-watering $2.1B
Master the Meta: Why Electronic Arts is acquiring Glu Mobile

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On Monday, U.S.-based video game giant Electronic Arts entered into an agreement to acquire U.S.-based mobile game developer Glu Mobile for $2.1B in enterprise value and equity value of $2.4B (including Glu’s ~$364 million in net cash). This deal helps EA further expand into the mobile space with Glu’s diversified portfolio across sports, RPG, lifestyle, casual, and mid-core genres. The acquisition is expected to finalise in Q2’21 and is planned to be financed by EA’s cash on hand.

Here’s the obvious question: is the deal good for EA? Well, there’s definitely lots of rationale. First, the acquisition will help stabilise EA’s traditionally hits-driven financial performance. EA’s made steady progress building its digital, recurring revenues, and acquiring Glu should help further stabilise the company’s revenue stream on a quarter-to-quarter basis. Acquiring Glu moderately moves the needle (increasing EA’s revenue ~10 per cent), but it clearly adds meaningful scale to EA’s mobile efforts.

Second, product-wise, with this deal EA gets a huge team of 780 employees, significantly scaling its mobile game development expertise. Both companies have experience creating mobile live service games and will combine forces to further develop in this direction. Glu Mobile’s portfolio seems to fit EA’s range of lifestyle and sports titles:

  • Design Home (Glu’s highest-grossing title), Covet Fashion, and Kim Kardashian: Hollywood will complement The Sims Mobile.
  • Tap Sports Baseball, Deer Hunter, and Tap Sports Fishing will be great add-ons to EA’s vast portfolio of sports titles.

These are all comparatively old titles, however, so what’s in store for 2021? This year Glu will focus on its PVP hunting game Deer Hunter World, fishing simulator Tap Sports Fishing, and sports game Tap Sports Baseball 2021 (which, again, fits perfectly into EA’s sports pack), as well as lifestyle decoration game Table & Taste and hypercasual title Crowdstar Moments.

As for Glu’s financial results, the company reported $540.5 million of revenue in 2020, compared to $411.4 million in 2019, and $366.6 million in 2018 (see graph), with approximately 56.5 per cent and 33 per cent of sales coming from the App Store and Google Play, respectively. The majority of the total revenue (80 per cent) is generated in the U.S., while EMEA brings approximately 10.5 per cent.

There is one major concern here, however: based on the Glu’s current valuation and financials, there is a chance that this investment won’t result in meaningful value creation. An example of such investment from EA could be seen in the acquisition of Plants vs. Zombies series developer PopCap Games for $1.3B in 2011, which didn’t pay off. With Glu specifically, we wonder if EA can help accelerate Glu’s roadmap or whether Glu can better help EA’s existing franchises better succeed on mobile - it’s all to be determined. Apart from that, the recent Codemasters deal means that in 2021 EA will have to integrate two large businesses into its ecosystem. In other words, it could take some time before any synergies click into place. 

All in all, this deal is yet another sign that the big dogs are accelerating their approach to M&A, creating some kind of… a panic, perhaps? Even if hyperbolic, the M&A landscape is clearly becoming more competitive, and there’s still billions in cash on the sidelines looking to be put to work in capital-efficient ways.

Look at EA’s latest deals: just in December 2020, EA entered into an agreement to acquire UK-based racing games developer Codemasters Group for up to $1.2B, beating the offer by Take-Two. But before that, deals happened all the back way to July 2018 (EA acquired California-based mobile game developer Industrial Toys for an undisclosed sum), and November 2017 (Electronic Arts acquired California-based game developer Respawn Entertainment for $455m). Two deals in the last three years vs. two way bigger deals in the last three months - there must be reason behind this acceleration, right? We’re certainly looking forward to other huge deals on the market this year. Buckle up, everyone; we’re in for a ride. (written by the InvestGame team)

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