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PGC Digital: What to consider with M&A

"You can think about the price on what you are acquiring by looking at its potential,"
PGC Digital: What to consider with M&A
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Mergers and acquisitions are part of the games industry. Particularly over the past year, with companies such as Microsoft, Electronic Arts, Tencent and Zynga splashing a lot of cash to pick up studios.

As part of Pocket Gamer Connects Digital #5, we held a panel on is M&A the right way to go? Things you should consider before making a big decision for your company.

Our experts included Elite Game Developers CEO and founder Joakim Achrén, CVCapital managing director Jim Ying, Initial Capital partner Alvaro Alvarez del Rio and iEntertainment Network president and chairman JW 'Bill' Stealey.

There are two sides to acquisitions, and that is the seller and buyer.

Like Glu

EA buying Glu is "huge news," reflecting on the increase in stock prices due to COVID-19, thus allowing big acquisitions such as this to occur. Overall, the deal between the two companies is worth $2.1 billion.

"The is pressure on the big companies to get involved with M&A," said Ying.

Achren added that the move by EA shows that "it means business" and is taking its mobile front seriously, as it looks to take on other giants such as Zynga.

"Clearly the big companies are putting money to work to buy smaller studios," said del Rio.

Risking it

There are risks on the seller's side in that it is important to determine precisely when the right time to sell is.

"Figuring out when to sell is a little bit more challenging," said Ying.

Timing is certainly crucial, do you sell before the game has been launched, or should a seller perhaps wait for its title to peak before looking for a buyer.

On the flip side, as a buyer, it is essential to determine if a possible acquisition has the means to be independent and operate efficiently.

"When you enter a long term partnership with somebody, knowing how the big company is gonna manage your studio and knowing the level of independence and input that you will get is extremely important," said del Rio.

Meanwhile, as a buyer, growth is a risk, as you want to purchase a company that has the means and talents to grow and manage its own project.

What to consider

As a buyer, it is vital to consider whether or not you can scale the business that is being sold.

"You can think about the price on what you are acquiring by looking at its potential," said Achren.

You need to think about who the investors and buyers are. Private investors are after profit, and thus they will want to look at a company's portfolio.

"They are after very little risk to their capital," said Ying.

When it comes to selling, Ying explained that "it is important to consider the potential buyer's strategy and why they want to buy their target."

As a seller, you should ask yourself "why did I start my company?" As the answer could well determine what direction you head in and help for the correct fit, you should choose to sell.

When only selling a certain slice of the company, it is important to understand what that means for your independence, and who is in charge.

"You really need to avoid anything that ties you to the buyer in the long run until you are 100 per cent certain that the resources will be available to you," explained del Rio.

Attracting a buyer

There are a few factors that a seller needs to consider when making themselves attractive to a potential buyer. For example, they need either a portfolio of games that are performing well or one trailblazing title.

"It is really important to have something that makes you unique in your genre," said del Rio.

Unique talent, space and culture with help to draw in acquirers. At different stages, there should be other focal points for a company founder.

"If you build a fun game, you will build an audience, and that will attract a potential buyer," said Ying.

Meanwhile, it is important to think about what exactly you, as the seller, want from a buyer. Furthermore, what risks need to be avoided for a smooth transaction.

What is your value?

There are financial factors that a buyer will consider when valuing a company, such as revenue.

"Fundamentally, it is a question of how well you are doing and how well people think you are doing," said del Rio

It is harder when you have a growth company than a company that has been stalled for at least six months.

Ultimately, data will drive the decision from a buyer. A seller needs to show revenue and growth trajectory and growth historicals. If these are not shown, a buyer will lose interest, which determines if the deal is worth it to the acquirer.

PGC Digital #5 will run from February 8th to February 12th. To keep up to date with all of our coverage, check out the roundups here. There's still time to sign up - to find out more and book a ticket, head to the website.