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The story of gaming in 2022 will be known as one that started out with so much promise and wound up with dashed hopes. Yet I believe that gaming is still fundamentally healthy as the world teeters along a sharp edge when it comes to the economy.

The numbers that game out this week — including those released today by M&A advisory firm Quantum Tech Partners — chronicled unprecedented growth in merger and acquisition transactions. Quantum Tech Partners cofounder Alina Soltys said in an interview with GamesBeat that M&A deals topped $106.4 billion, up 110% from the prior year.

If you take out the huge pending transaction of Microsoft’s $68.9 billion acquisition of Activision Blizzard, the M&A deals were worth $38 billion, compared to the usual pattern of $3 billion to $5 billion in deals from 2016 to 2019.

“We have baseline market activity that has grown 10 times larger in three years,” Soltys said. “Up until 2021, we never broke through $25 billion in M&A value, and now we shot above $100 billion.”


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Quantum Tech Partners
Quantum Tech Partners says M&A hit a record in 2022.

The Quantum Tech Partners numbers directionally match those of Drake Star Partners, which came out this week, while Konvoy Ventures took a narrower view of venture capital financings in games, which were down dramatically in Q4.

During the year, venture capitalists and strategic investors poured $17 billion into game company investments. That number is down 46% from the prior year. Still the number of transactions in fundraising has never been higher with 1,039 transactions in 2022.

Yet the war in Ukraine shook the economies of the world that were still recovering from COVID-19, and the crypto crash left cryptocurrency valuations down 70% for the year, wiping out the wealth of some of the biggest blockchain gaming enthusiasts. The doldrums that resulted led to layoffs at a wide variety of companies, from Jam City to Unity, not to mention cutbacks at platform owners such as Amazon and Microsoft. On the bright side, you don’t see game companies cutting back as much as tech companies.

A total of $76 billion has been raised in the last four years, bringing a lot of capital and building into gaming, Soltys said.

About $4.7 billion went into Web3 investments, up 43% in deal value from the prior year and accounting for 27% of all game fundings. That represents a huge amount of enthusiasm, as blockchain games are a tiny part of the $184.4 billion in revenue generated in 2022 in gaming (Newzoo numbers). Total blockchain gaming deals hit 431, up 224% from a year earlier.

Quantum Tech Partners
Quantum Tech Partners says valuations vary across mobile, PC and console game companies.

Public company index valuations showed that the public game company stocks trade at about 2.8 times revenue and 10 times EBITDA (earnings before interest, taxes, depreciation and amortization). In November 2021, public game companies were trading at 4.5 times revenues and 15.3 times EBITDA. That decline affects the kind of valuations that private companies can get, Soltys said.

Both Web2 and Web3 companies are on the serial acquirer list. Embracer Group acquired 12 companies in 2022, down from 27 in 2021. Animoca Brands was No. 2 with nine acquisitions.

The top 10 transactions included Take-Two’s acquisition of Zynga for $12.7 billion, with a focus on bringing Zynga’s mobile games to a larger portfoloio of PC and console games.

Gaming funds raise record amount

Quantum Tech Partners
Quantum Tech Partners says quarterly financings took a dive in late 2022.

One of the biggest signs of optimism is that dedicated gaming funds — which didn’t really exist a decade ago — raised a record $3.45 billion in 2022, Soltys said. That excludes a substantial FTX gaming fund, which went kaput with that company’s implosion. Still, the fundraising environment has never seen this much dry powder ready to be invested. You can expect big game companies to continue their acquisition binge, with Meta buying VR companies, so long as regulators will allow the deals to happen.

But game companies will have to show they have built more of their products to get that money, or they will have to show early customer key performance indicators or monetization data, based on the stage that they’re in.

“A pitchdeck and a popular concept will not be enough,” Soltys said.

As for the 2023 outlook, Soltys said M&A will continue to drive interest in smaller and mid-sized studios that have unique intellectual properties and audiences. Proven titles that offer larger acquirers the ability to fill gaps, add to strategic focus areas or expand due to direct feedback, Soltys said.

Innovation continues especially in the area of AI applied to game development.

“We will begin seeing early concept stage development, art, generative characters, NPCs and putting creation in the hands of non-developers assisted with AI applications,” Soltys said.

Q4 numbers pretty much fell apart, as you can tell from some of these charts. Valuations of companies also declined in the second part of the year. Will there be a rollup of blockchain game companies? Soltys isn’t so sure about that, as it’s so early as a low-revenue industry. Rollups happen in mature industries.

Quantum Tech Partners doesn’t expect M&A to set new records in 2023, even though companies will
try to stay competitive and grow strategically with M&A deals. Cash-rich buyers will have the chance
to buy companies at more reasonable valuations not seen for a couple of years.

Esports deals took a big dive as consistent revenues were hard to come by. FaZe Clan went public via a special purpose acquisition company (SPAC), but its valuation has plummeted. Capital for esports companies is likely to continue to be scarce.

Quantum Tech Partners
Quantum Tech Partners said gaming transactions are on the rise.

“This is about a shift away from growth at all costs,” Soltys said. “And the more touristy investors that came in for the market momentum are now being taken over by more serious investors that are taking a much closer look.”

Across all startups, fundraising will take longer, the checks will be smaller, and overall valuations will be more conservative. But activity should increase in the second half of the year after the economic picture becomes clear.

“It’s important to have a meaningful self sustaining business,” Soltys said. “Some startups are caught in a situation where they need to make some tough calls. We’ll continue to see some startups right size their burn, try to find avenues to extend their runways, and build profitable products and profitable companies. That has meaningfully shifted in the last few months. And that will be kind of the story going forward and the early part of this year.”

In my opinion, blockchain games will have to prove themselves. Both blockchain and the metaverse have taken a reputation hit, with more skepticism from game developers in particular, as the Game Developers Conference survey showed this week. But the metaverse benefits from a shared optimistic vision across many industries, from fashion to enterprises, and you will see game companies benefiting from the metaverse investments those other industries are making. After all, lots of companies beyond gaming want to build the metaverse, but the most capable builders are game developers.

Blockchain and the metaverse aren’t the only ways for gaming to grow. VR had a banner year. Cloud gaming is making gaming far more accessible to non-gamers, and subscriptions from companies like Netflix and Microsoft are getting gamers to try out more things, Soltys said.

I hope that a lot of games that were delayed in 2023 — titles like Starfield and Redfall from Microsoft in particular — will finally ship in 2023. The year should get a boost from the launch of PlayStation VR 2 in February, giving a midlife kicker for the PlayStation 5. Hopefully console shortages will abate in 2023 as the downturn loosens up the supply chain. And we’ll see big triple-A games coming such as Dead Space, Diablo IV, The Legend of Zelda: Tears of the Kingdom, Star Wars Jedi: Survivor, Atomic Heart, Hogwarts Legacy, and many more.

And Quantum Tech partners hopes mobile games will see more original titles that build strong communities and generate more excitement. I’m particularly excited to see growth in hours played, as pointed out by Steve Koenig, head of research at the Consumer Technology Association, as players who adopted games in the pandemic are still playing and are playing longer. It will be bumpy for some quarters, Soltys said, and it should pick up in the second half.

Quantum Tech Partners
Quantum Tech Partners’ valuations by quarter.

Add to that the growth of video games in mainstream culture. This is harder to quantify, but you can see it in the successful launch of The Last of Us television show, whose first episode on HBO garnered more than 4.7 million viewers. This reborn marriage of Hollywood and games is going to be one of our big themes at our GamesBeat Summit 2023 event, May 22 to May 23 in Santa Monica, California.

“The industry has grown up tremendously. And there’s a lot more activity, there’s a lot more players, and a lot more significant IP and technology that’s been built to enable all this activity to be happening,” Soltys said. “Toward the back half of this year, is there is significant capital that needs to be put to work. And if you look at gaming overall, there’s still a lot of innovation that is happening within Web3 and also just within the broader gaming environment.”

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