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The most significant mobile game deals of 2017

Who signed on the dotted line?
The most significant mobile game deals of 2017

The art of the business deal is more subtle than most understand.

Sometimes the purchaser is desperate to fill a gap in its financials or enter a market in which it feels its competitors have a headstart.

Conversely, other times the purchased party is the one desperate to sell, or at least its investors and shareholders.

Back to the future

Always there’s a tension between both companies, typically in terms of the price, or its cash component, or perhaps the potential for a big earnout if management can sweat the assets and provide their new masters with fat future profits.

And that’s why every deal marks its own performance, telling us about the trajectories of the parties involved and wider industry trends.

$55m: GameStop sells Kongregate, which buys Synapse

$55m: GameStop sells Kongregate, which buys Synapse

When US games and tech retailer GameStop acquired PC/browser games publisher Kongregate in 2010, it was driven by a certain logic.

While GameStop’s physical retail business was about to peak in terms of overall revenues, the company was trying to futureproof itself by investing in new digital opportunities.

Fast-growing and 100 per cent digital, Kongregate fitted the bill and during its time as part of GameStop has added decent annual profits as it expanded to publish games on mobile and Steam.

Changing emphasis

Yet, over time, as GameStop’s focus has moved from games to selling collectibles and mobile devices, its ownership of Kongregate has appeared increasingly incongruous.

The result was it offloaded the company to Swedish media group MTG to $55 million, where it will sit within a smorgasbord of assets ranging from esports brands ESL and Dreamhack to a majority ownership of German developer Innogames.

As for Kongregate, it reinforced its business by buying cross-platform developer Synapse, which most recently released the successful Animation Throwdown game through Kongregate.

€83m: MTG buys another 30% of InnoGames

€83m: MTG buys another 30% of InnoGames

Swedish media outfit MTG (Modern Times Group) has been building up a substantial portfolio of games-related investments in its MTGx division.

In 2017, as well as buying Kongregate for $55 million, it increased its stake in German PC/mobile developer InnoGames from 21 to 51 per cent.

Gaining a majority stake didn’t come cheap, costing €82.6 million (c.$95 million), although this was based on its original €260 million (c.$300m) valuation of Innogames from 2016, and indeed is an optional continuation of that deal.

Measured value

As for what it gets for its money, in 2016 InnoGames posted 25 per cent growth, sales of €130 million (c.$150m) and an EBITDA margin of around 20 per cent, pricing the deal at around 10 times earnings.

That’s high but not ridiculously so, being broadly similar to the 11 times earnings that MTG paid to acquire Kongregate, a much smaller company with an EBITDA margin of around 10 per cent.

c.$100m: Nexon buys Pixelberry

c.$100m: Nexon buys Pixelberry

The majority of F2P publisher Nexon’s business is generated in China, Japan and South Korea and is based on core PC games. That context makes its acquisition of US casual studio Pixelberry significant.

After some fallow years, Pixelberry returned to app store success with the release of interactive story game Choices. However, it took time. Choices was released in August 2016 and didn’t break the US top 100 grossing games until October, entering the top 50 in December.

Since then it’s been a solid top 20 performer, something that clearly caught Nexon’s attention.

Going global

It’s not the first time Nexon has acquired a US developer though. Its previous US deal was buying Dominations developer Big Huge Games in early 2016, but as Nexon published the game, it was less surprising news.

As with the Big Huge deal, terms weren’t disclosed, but given Choices success in the West to-date, its value should be over $100 million. That will rise if Choices localisation for Asian markets - the first fruit of the deal - is a success.

c.$100m: TT Games buys Playdemic

c.$100m: TT Games buys Playdemic

Golf Clash has been one of the surprise hits of the year so Warner-owned TT Games certainly got its timing right when it acquired its developer, fellow UK studio Playdemic, in early 2017.

The terms of the deal weren’t announced but given the success of Golf Clash, which has been a solid top 20 top grossing game in Western markets since July, it should have been well into triple figures.

Big money, small print

Of course, as Golf Clash didn’t enter the top 100 grossing charts until after the deal was signed, TT Games might have got itself a real bargain. But most likely, there would have been a performance-related clause to bump up the deal’s terms based on future earnings.

Significantly, though, the headline rationale for the deal was that Playdemic would help TT Games make better mobile games based around the LEGO brand. That now seems besides the point.

$143m: Zynga’s card game spending spree

$143m: Zynga’s card game spending spree

Given he started the year sitting on a warchest of $852 million, Zynga CEO Frank Gibeau could be forgiven for having itchy fingers.

Yet, the two deals completed in 2017 were less about money spent and more about building up Zynga’s business when it comes to mobile card games.

First up was the $42.5 million deal to acquire the App Store’s number one Solitaire game. Effectively an underdeveloped asset released by two-man indie Harpan in 2013 and not updated since 2015, this ad-funded game demonstrated the power of placement.

Since Zynga bought it, it’s seldom been outside the US top 50 game download chart, providing a platform for the company to cross-promote its other titles.

High stakes

Zynga’s purchase of Peak Games’ card and board games studio was an altogether more serious and structured deal, however.

Priced at $100 million, it sees Zynga acquiring all assets and staff from the Turkish developer’s mobile card games division, including titles ranging from Spades Plus and Gin Rummy Plus to games popular in the Middle-East such as Okey Plus.

The result is, alongside existing titles such as Zynga Poker, Zynga now boasts the world’s largest portfolio of mobile casual card games.

$250m: Take-Two buys Social Point

$250m: Take-Two buys Social Point

As deals go, the acquisition of casual mobile developer Social Point by Grand Theft Auto 5 and Red Dead Redemption publisher Take-Two seemed orthogonal. But maybe that was the point.

Take-Two paid $250 million - $175 million in cash with another $30 million of performance bonus potentially available - for the Spanish developer of F2P games such as Dragon City and Monster Legends.

That valued the company at 2.8 times sales or almost nine times profits.

What’s next?

In terms of justification, Take-Two president Strauss Zelnick argued the deal diversified its business and would enhance future revenues.

However, given how robustly GTA Online, GTA V and NBA 2K17 performed during the year, Social Point’s contribution to Take-Two’s financials in 2017 proved marginal.

Still, given that before the deal Take-Two’s only successful F2P mobile game was WWE SuperCard, Social Point’s undoubted expertise and $90 million of annual revenue is at least a starting point for Take-Two to take the F2P mobile games sector more seriously in future.

€270m: Goodgame reverse-lists with Stillfront Games merger

€270m: Goodgame reverse-lists with Stillfront Games merger

In what must go down as the most badly-explained deals of 2017, German developer Goodgame merged with Swedish game conglomerate Stillfront.

The confusion arose as each company announced the news to show itself in the best light, hence Stillfront said it had acquired Goodgame, while Goodgame announced it had merged with Stillfront.

Bigger fish

At least the deal’s financials were relatively clear.

Stillfront ‘acquired’ Goodgame for €270 million (c.$320m) in cash (€39m) and new shares, at a price of around 10 times profits (before interest and tax), with Goodgame's co-founders Kai and Christian Wawrzinek gaining at least 27 per cent of the combined company.

Digging a bit deeper and the reason for the confusion becomes apparent - Goodgame is much, much bigger than Stillfront.

For the first nine months of 2017, it had sales of €71 million, which compares to Stillfront’s sales for the same period of around €11 million.

But however you want to describe the deal, the result is not in question. The new Stillfront Games will be one of the largest European games companies; something that will be reflected as it upgrades its stock market listing from the Nasdaq First North Premier exchange to the full Nasdaq Stockholm market.

$500m: Aristocrat buys Plarium, which buys Rumble

$500m: Aristocrat buys Plarium, which buys Rumble

In terms of the largest pure-play mobile games deal in 2017, the winner was Australian casino company Aristocrat Leisure which shelled out a cool $500 million in cash to acquire Israeli core mobile developer Plarium.

The deal valued Plarium at 2.5 times sales or over 11 times earnings, the latter being the highest ratio of the year, and this assumes Aristocrat doesn’t have to pay an additional amount in terms of performance earn-out over the next two years.

Still, for its money, it gets a developer which has demonstrated an ability to successfully operate in the highly competitive and lucrative 4X strategy market.

Levelling up

How much direct synergies can be found with Aristocrat’s mobile casino games division Product Madness remains to be seen. More likely it’s the ability of Plarium to monetise its audience with events and updates that will prove to be a complementary skill.

And this will be more obviously put into effect as post-deal Plarium itself acquired stuttering US mobile/web game developer Rumble Entertainment.

Terms weren’t revealed, but over the years, Rumble has released successful and not so successful F2P RPGs such as KingsRoad and Alliance, raising over $25 million in investment from Nexon and iDreamsky along the way.

$825m - DoubleU buys Double Down

$825m - DoubleU buys Double Down

It’s no coincidence two of the three biggest deals in 2017 involved casino companies. But unlike Aristocrat’s Plarium landgrab, London-based IGT’s move to sell DoubleDown Casino & Slots developer Double Down to Korean casino company DoubleU was more pragmatic.

Sure, there is a lot of cash in the casino business, but just like any other business, it’s being disrupted by technology.

So given IGT built up its digital games business through agressive debt financing, it took the opportunity to sell an asset it had bought for less than $350 million (excluding earn-out) in 2012 for $825 million, a big mark-up.

The deal, which valued Double Down at 10.5 times earnings, also saw DoubleU and IGT signing a strategic partnership which will see IGT games offered on DoubleU’s social casino platform, gaining it large audiences in Asia.

$1b - Zhejiang Jinke Peroxide Co. buys Outfit7

$1b - Zhejiang Jinke Peroxide Co. buys Outfit7

Even a cursory reading of the market intelligence is clear: China is the largest and the fastest growing mobile games market in the world.

Given that’s the case, the news the biggest deal of 2017 involved a Chinese company which previously had nothing to do with mobile games or apps shouldn’t be a shock.

The bottomline - as this excellent article explains - is Chinese companies operate by different rules and can raise large amounts of capital to pivot what to Western eyes would be totally irrelevant businesses into the digital world.

Perhaps, then, the bigger surprise in this case is how Slovenian developer Outfit7 had quietly grown to such a scale that anyone would pay such a sum, even given the fact its Talking Tom andFriends interactive apps/games have been downloaded over seven billion times with 350 million MAUs.