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Game companies are still cutting a lot of deals. The first half of 2022 has seen more than 651 deals announced or closed with a disclosed value of $107 billion, according to investment bank Drake Star Partners.

That compares to 635 deals in the first half of 2021 with a total value of $60 billion, said Michael Metzger, a partner at Drake Star Partners, in an interview with GamesBeat. And all of last year saw only $85 billion in deals.

“The outlook has continued to be healthy, considering the continued consolidation,” said Metzger. “Across the board, the buyers are much more focused on profitability than they were before. A lot of them just looked (in the past) at growth even if companies were losing money before. But it’s now much more focused on more quality, with a focus on cash flow than six or 12 months ago.”

Most of that activity ($98.7 billion) occurred in the first quarter, with Microsoft’s $68.5 billion pending acquisition of Activision Blizzard accounting for the bulk of the activity. If you look at the numbers for Q2 compared to Q1, there is an obvious slowdown in the numbers and value of deals.

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But Metzger said the second-quarter results show that gaming is holding steady despite a general meltdown in crypto, the broader economy, the stock market, and the tech industry. So far, 2022 has still been the hottest year in gaming with staggering levels of dealmaking compared to past years, Metzger said.

The merger and acquisition activity topped $95 billion in announced or closed M&A deals across mobile, PC, console, and esports sectors. Six billion-dollar-plus deals drove the activity. Besides Activision Blizzard, the big deals included Take-Two’s purchase of Zynga, Sony’s acquisition of Bungie, and the ESL and FaceIt acquisition by Savvy Games Group.

The big question

M&A deals of 1H22.
M&A deals of 1H22.

I asked Metzger if we saw any weakness in Q2 compared to Q1 thanks to the fears around the war in Ukraine, inflation, a looming recession, and the crypto crash.

“On the M&A side, we had a healthy number of deals in Q2, with 60 deals announced,” Metzger said. “That compared with the average of 74 deals per quarter in 2021. And it compared to 47 deals per quarter on average in 2020 survive in the middle.”

He added, “But we did not mega deals, or any really big deals in Q2. If you look at the total deal value, it’s a series smaller deals, and the deal amounts are not announced. So it’s hard to look at the dollar value for Q2 by itself.”

Drake Star Partners predicted earlier that we could hit $150 billion in deals in 2022, compared to $85 billion in 2021. But it’s not clear if that will happen now, as that depends a lot on mega deals closing.

“My gut feeling is that consolidation will continue at a similar pace as we saw in Q2,” he said.

In Q3, Unity acquired IronSource for $4.4 billion, and Sony finally closed its acquisition of Bungie. I noted in an earlier story that the Ukraine game industry was hit hard by the Russian invasion, and many Russian game companies have also shut down because they can’t do business with the West.

$7B invested in startups

Big deals announced in 1H22.

Mobile was the most active segment with 47 deals. And a record-breaking $7 billion was invested through venture capitalists and strategic investors in private gaming companies during the first half with 11 large rounds that exceeded $100 million.

On the investment side, there was a dip in Q2 compared to Q1.

“But it’s still pretty healthy if you look at the long term,” he said. “What’s interesting is that over half of those investments were crypto gaming deals. That was followed by mobile deals.”

Epic Games led the pack with a mammoth $2 billion raise while Animoca Brands, Dream Games, Immutable and Thatgamecompany followed with large $150 million-plus deals.

The most active game-focused VCs included Bitkraft, Galaxy Interactive, a16z and Griffin Gaming.

More than $2.2 billion was raised by private blockchain / NFT gaming companies with over half of total amount raised by early-stage companies. The most active blockchain gaming investors were Animoca Brands, Shima Capital, and FTX.

While Q2 didn’t have any mega M&A deals, M&A activity remained very healthy with 60 announced deals compared to 74 deals per quarter in 2021 and 47 deals per quarter in 2020.

Notable buyers included Tencent (Sybo, Trailmix), Embracer (Eidos, Crystal Dynamics and Square Enix Assets), Microsoft/Activision Blizzard (Proletariat, Peltarion) and Hasbro (D&D Beyond).

Private financing market continued to see strong deal activity with $3.6B in total financings in Q2, surpassing Q1 total through 169 deals. Blockchain continued to be a major push in gaming with over half of financing deals related to blockchain gaming companies.

New funds on the block

Bitkraft was the top investor in 1H22.

Multiple new funds focused on gaming/blockchain were announced in Q2 including by Andreessen Horowitz ($4.5 billion for blockchain and $600 million for gaming), Binance ($500 million), Immutable ($500 million) and Konvoy Ventures ($150 million) and are actively looking to deploy the new capital.

The new funds will deploy their capital, but they may be more picky and selective, Metzger said.

In public markets, Embracer Group raised $1 billion from Savvy Gaming/PIF (8.1%) and PIF also strengthened its gaming presence with investment in Konami, Capcom and Nintendo. Joffre Capital acquired a minority stake in Playtika for $2.2 billion.

So far, 2022 has been a record year of consolidation, diversification and investments in the industry, and Drake Star Partners believes that we will continue to see strong M&A and financing activity in the second half of the year as well.

Considering the recent valuation correction of public companies across global markets, many of the public gaming strategics are now more focused on higher quality targets that exhibit strong profitability. (As an example, Unity just bought the profitable IronSource mobile monetization firm for $4.4 billion). As the overall market valuation has come down, Metzger expects M&A valuation multiples to also adjust.

Publicy listed companies are now under even more pressure to show growth and profitability, and Drake Star expects a strong volume of mid-sized M&A deals and a few mega deals in the second half of the year. We will likely also see the first wave of NFT / blockchain M&A deals this year, Drake Star said.

Blockchain games still strong

The big blockchain game investments of 1H22.

The large number of new dedicated gaming and blockchain funds continue to invest aggressively in private gaming companies, with about half the gaming deal volume in the blockchain segment. Valuations for top deals will likely continue to be very high.

But the whole sector could also be affected by the cryptocurrency downturn. Most of the crypto deals are early-stage investments, Metzger said. And if the industry follows its usual pattern, you might see five or ten successes among 200 or so investments. Animoca Brands alone has invested in more than 340 blockchain gaming deals, and it said its portfolio was worth $1.5 billion.

The initial public offering (IPO) and special purpose acquisition company (SPAC) market for gaming companies has been quiet in the the first half and Drake Star is hopeful that the markets will open up again in the fall. (Of course, that depends on the world economy and the broader stock market). Drake Star expects we may see several public companies being taken private in the second half of the year, as private equity firms are attracted by the current lower valuations of listed companies.

In one of the largest announced mobile deals this quarter, Miniclip, a subsidiary of Tencent, acquired Subway Surfers creator Sybo Games. Infinite Reality, Inc. announced its acquisition of ReKTGlobal, an esports and entertainment company, for $470 million.

Blockchain game investors.
Blockchain game investors.

Admix is merging with Landvault, a builder in metaverse worlds as it pivots into Web3, combined company will be worth $300 million.

Embracer group acquired Crystal Dynamics, Eidos-Montréal, and Square Enix Montréal for $300 million. Hasbro announced its acquisition of D&D Beyond, leading digital toolset and game companion for Dungeons & Dragons, for $146.3 million.

Better Collective announced the acquisition of FIFA community platform Futbin for $113.4 million. Supercell, a subsidiary of Tencent, announced the acquisition of Trailmix, the mobile game developer, for $60 million. And Cave Interactive Company announced its acquisition of Dera Game Company for $39 million.

In the public markets, Hiro Metaverse launched its first SPAC raising $154.4 million for a focus on video games, e-sports, interactive streaming, etc.

Fundraising

Big deals of 1H22.

Epic Games raised $2 billion at a $31.5 billion valuation in a round backed by Sony, KIRKBI, and Align Ventures. Improbable raised $150 million for development of M2 (MSquared) valued at $1 billion, in a round co-led by A16z and SoftBank with participation from CMT Digital.

Axie Infinity raised $150M in a round led by Binance with participation from Accel, A16z, and Paradigm. AccelByte raised $60 million in a round led by SoftBank Vision Fund 2 with participation from NetEase, Sony Interactive Entertainment and Galaxy Interactive.

Cocos Technology, a China-based game engine provider, raised $50 million from CCB Trust, GGV Capital and Agora. Playful Studios, developer of Lucky’s Tale and Creativerse, raised $46 million for The Wildcard Alliance in a Series A round led by Paradigm with participation from Griffin Gaming Partners, Polygon and Sabrina Hahn.

“It will be interesting to see what’s going to happen moving forward,” said Metzger. “Sometimes those financing and M&A deals are in the work for a long time. And sometimes they close and financing deals are not even always announced. We still see a lot of healthy financing activity.”

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