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Game deals are expected to nearly double to $150 billion in 2022, according to a forecast by investment bank Drake Star Partners.

The report noted that gaming mergers and acquisitions, private financing, and public offerings have already exceeded all of last year’s $85 billion in just January alone, said Michael Metzger, partner at Drake Star, in an interview with GamesBeat.

2021 was a record year for deals in video gaming, with $85 billion of value across 1,159 announced or closed
deals. That was up almost three times compared to 2020. It came because of gaming’s historic growth during the pandemic when people turned to games to distract themselves during lockdowns. Those habits continued as lockdowns lifted and returned and lifted again, and game companies prospered.

“For this year we’re envisioning we’re gonna exceed $150 billion, and we’ve already surpassed all of 2021 with just the four deals that were announced this month,” Metzger said. “I still see a ton of activity in the space. I don’t really see it slowing down. It feels like some of the public companies are even more focused on acquisitions.”

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More than 100 game-focused venture capital funds have been pouring money into game studios, and big companies like Embracer Group, Microsoft, Stillfront, Sony, Tencent, and others have been acquiring game studios by the dozen. Game companies have also been going public through public offerings (like Roblox, Unity, Playtika) and special purpose acquisition companies (SPACs) like Nexters, Skillz, and others.

Of course, if the pandemic gets worse and public markets get spooked, the acquisition activity and IPOs could die down.

The M&A craze

Big VC investments in games are racing ahead.

In the month of January, we saw the biggest deals ever, first with Take-Two Interactive’s $12.7 billion acquisition of Zynga and then Microsoft’s $68.7 billion bid to acquire Activision Blizzard. Savvy Gaming Group, which is backed by the Saudi Arabian government’s Public Investment Fund, acquired ESL and FaceIt for $1 billion. And this week, Sony said it would buy Bungie for $3.6 billion.

“We believe this is only the beginning of a historic era of both consolidation and diversification in the industry and given the early signs, we might see deal volume of over $150 billion in deals 2022,” said Metzger.

The video gaming M&A market will be pushed ahead on several fronts. Video gaming companies like Electronic Arts and Take-Two Interactive that have historically focused on the PC and console segment are expanding and diversifying into mobile, and mobile-focused players are acquiring PC and console-focused companies, so the lines are blurring.

Metzger expects to see more true cross-platform games across PC, console, and mobile in the years to come, and having development and live-operations expertise in all segments will become increasingly important, he said.

On the other side, Tencent — the biggest global player in the mobile gaming segments — has been heavily expanding into the PC and console space, with 11 acquisitions in 2021 (Sumo Group, Turtle Rock and Klei Entertainment, etc.), and Metzger expects the company to continue acquiring many triple-A PC and console developers this year.

Acquisition of western studios by Asian players will accelerate in 2022. Japan-based Sony acquired six gaming companies in 2021 (Housemarque, Spitfire, etc.) and South Korea-based Krafton (which went public through its high-profile IPO in 2021) acquired Unknown Worlds and made strategic investments in several gaming companies.

China is increasing regulations and restricting content, playtime and monetization strategies. And that is accelerating both M&A and minority investment in western companies as Asian strategics are trying to find further growth.

“We expect to see continued consolidation this year from Tencent, Sony, Netease, ByteDance, Krafton, and Nexon,” Metzger said.

Several western players acquired Asian studios, either to get access to Asian players or to content that is successful in
the west. Sweden-based Stillfront just acquired 6Wave (focused on Japan) and Zynga acquired Golf Rivals maker StarLark in China.

Top western acquirers to watch this year are Embracer, Epic Games, Amazon, and Netflix. As the gaming industry consolidates, the resulting companies will also look for new revenue streams that harmonize with their existing audiences and core competencies. Companies traditionally focused on creating mobile games will likely see that the broader mobile entertainment space is ripe for expansion.

Dating, meditation, and lifestyle apps can be seen as a similar type of content as games that require an expertise in acquiring, retaining, and monetizing mobile users, Metzger said. You can expect successful brands to add new mobile entertainment verticals to their portfolios, he said.

New wave of unicorns

Destiny 2: Beyond Light.
Destiny 2: Beyond Light.

Investments in private companies reached a record $13 billion in over 700 deals in 2021. We saw nine disclosed large investments in promising developers that were at or above $100 million in 2021 alone and a dozen similar large
funding rounds in gaming platforms and hardware category.

The capital invested in private companies steadily increased from the first quarter of 2021 to the fourth quarter and reached a record of $4.1 billion with over 200 deals in Q4 alone. At the same time, numerous new funds were formed in 2021, and they will likely put all this money to work this year to take part in the industry-wide growth.

Drake Star expects 2022 to reach a new record in both deal value and volume of gaming private placements and numerous financing round at or above unicorn level, or $1 billion in value.

Investments will come from both VCs as well as strategic investors, such as Tencent, Netease, and Warner Music. And eventually, market regulators could step in to stop some deals for antitrust reasons.

High-profile IPOs

IO is a simulated person built with Epic Games' MetaHuman Creator.
IO is a simulated person built with Epic Games’ MetaHuman Creator.

Drake Star expects to see several high-profile IPOs in 2022, such as Epic Games and Discord, two companies that are in
the midst of multi-industry expansions and eager to capitalize on the growth potential they signify. (Neither company has announced such intentions so far).

A growing list of companies have reached an IPO-ready stage, such as Niantic, Scopely, Voodoo, Jam City, Moon Active, Dream11, and MPL. And some of them may decide to go public this year, Metzger said.

“The U.S. market is obviously challenging, but the IPO market could change quickly,” Metzger said. “And we thought potentially a listing of Discord makes sense, probably towards the latter half of the year.”

New public companies include Roblox, Krafton, Unity, IronSource, AppLovin, Playtika, Playstudios, Nexters, Skillz, and Devolver. That optimism for gaming SPAC deals has cooled as deals fell through during the later part of 2021, some SPACs did not perform well and traditional IPOs and direct listings proved effective.

However, with an expectation of overall market rebound in 2022, Drake Star expects to see some gaming companies
going public via SPACs as SPACs aggressively look to find targets.

The mobile game companies are up for grabs in part because of Apple’s shift to focus on privacy over targeted advertising. Because of this change with the Identifier for Advertisers (IDFA), Meta/Facebook said this week that it could lose $10 billion in revenue in 2022. And if Meta is losing that much money, the mobile game companies that use Meta for advertising could also take a big hit.

“There has been a very significant reduction in value across all the mobile players,” said Metzger. “We also expect a lot of activity from the Asian companies this year as they expand beyond China.”

Return of VR/AR

AleXa's virtual concert could be a forerunner of the metaverse.
AleXa’s virtual concert could be a forerunner of the metaverse.

After Facebook changed its name to Meta in October and said it would focus on building the metaverse, augmented reality and virtual reality got a big boost. We’re already seeing renewed interest in the VR/AR space in what could be considered its second cycle (the first being the initial rush around 2017) and one far less likely to implode. Meta is investing heavily (losing $3.3 billion on revenues of $877 million in Q4 alone).

The new interest has also prompted new speculation in the VC community. Support from Meta promises a healthy ecosystem in the near and medium-term, reducing the risk that a startup will be starved for infrastructure and potential customers.

Business models that faltered years ago may be resurrected in an environment more conducive to them, and with valuable insights from their predecessors, Metzger said.

The hardware front is promising as well, with new headsets achieving levels of both quality and affordability that far
exceed the previous generations. Sony has detailed its PlayStation VR 2 headset, likely to be in as constant demand as its PS5 console, while low-end competitors like Google have been pushed out of the way by affordable standalone headsets like the Oculus Quest — itself due to be succeeded soon.

Meta CEO Mark Zuckerberg has also confirmed that the company subsidizes and will continue to subsidize the cost of its headsets. And a high-end VR headset and a new set of AR glasses will be coming from Meta this year.

Subscription battleground

Xbox Game Pass is Microsoft's subscription service for games.
Xbox Game Pass is Microsoft’s subscription service for games.

Metzger said the subscription business is fast becoming one of the most contested in the gaming world. What began as access to certain premium online features has become a battleground for crucial recurring revenue.

Sony has slowly increased the perks and free games available via its PlayStation Plus membership program, but
Microsoft has invested far more heavily, clearly seeing an opportunity to pass up its rival by pressing its advantage in
the PC market. Over the last year, its Xbox Game Pass subscription has become a huge value proposition for gamers
on both PC and Xbox platforms, with dozens of free games and features rolled in from other subscriptions like Xbox
Live Gold, Metzger said.

Microsoft announced that it has reached 25 million players paying for Game Pass — and Sony is working on a new and improved subscription service code-named Spartacus that is expected to launch in the spring of 2022. Even Nintendo, which rarely takes its cues from the broader gaming industry, has begun expanding its comparatively barebones Nintendo Switch Online service.

Microsoft’s acquisition of Activision Blizzard could put several of the world’s most popular gaming franchises at its disposal for Game Pass inclusion or discounts.

“We would not be surprised if Sony responds to the Activision Blizzard acquisition with attractive offers to acquire other top-listed PC / console gaming companies,” Metzger said.

NFTs and beyond

Gamestop has teamed up with Immutable on NFTs.
Gamestop has teamed up with Immutable on NFTs.

We will continue to see heavy investment in the NFT and blockchain gaming space driven by both strategic investors
like Animoca Brands (which invested in 52 gaming companies in 2021) and VCs like Andreessen Horowitz (rumored to be raising a $4.5 billion crypto fund).

2022 is expected to significantly exceed last year’s investments of $3.6B and Metzger said we will likely see many new NFT unicorns among young gaming companies.

“We will see the first wave of highly successful games with a play-to-earn economy beyond Axie Infinity,” Metzger said. “Broader adoption of NFT based gaming will probably take many years, and 2022 will likely also bring the first wave of losers among the NFT focused startups. We believe that the established top gaming buyers will carefully watch the NFT
gaming and the associated regulatory environment to unfold before making any major acquisitions in the space.”

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