featured image

Despite the tough economic headwinds of 2022, the year promises to be another good year for video game deal making, with dozens of investments, mergers and acquisitions, even as the industry’s IPO market has “collapsed,” according to the latest quarterly report from industry consultancy Digital Development Management.

Investors put $4.8 billion in 217 deals in the second quarter, up 37 percent from the previous quarter, while the value of 59 mergers and acquisitions in the quarter was $18.6 billion, up 135 percent versus the previous quarter, according to the DDM Games Investment Review.

“For investments, Q2 2022 is the highest volume for a second quarter with 217 investments and the third highest volume for any quarter recorded in our 13+ years of data,” the report says. “It’s also the third consecutive quarter that deal volume has surpassed 200 transactions.”

That said, there are signs of slowing even in the closing of deals around the huge and red-hot $160 billion video game sector, according to the Games Investment Review.

While there were more deals in the first half of the year, they tended to be for significantly less per deal compared to the massive first half of 2021 in 2021, when the industry ushered in the lockdown months of the pandemic by $25.5 billion. in investment deals and another $28.5 billion in M&A transactions. IPOs in the first half of last year were also off the charts, worth $84.4 billion in the first half of 2021 for 16 deals.

“Compared to the first half of 2021, investment has more than halved in the first half of 2022, mergers and acquisitions have fallen by just over 7% and IPOs have collapsed,” the report said. “However, investment volume has increased by 33% and mergers and acquisitions have held steady from the incredible pace set in 2021.”

For 2022, the largest investment of the second quarter was the $2 billion purchase by Sony, along with KIRKBI, of a small share of Epic Games, maker of the battle royale title. Fortnite and the widely used Unreal Engine, which is increasingly being used for virtual film, TV and streaming video productions, as well as for game creation and virtual reality/Metaverse experiences. The Sony/KIRKBI investment valued Epic at $31.5 billion.

The second quarter of 2022 was the third consecutive quarter of the top 200 investment transactions, indicating continued interest in the big money investor sector amid a deteriorating economic environment and massive declines in both the stock market and cryptocurrencies. Among the biggest investors in the industry were Animoca Brands and Saudi Arabia’s Public Investment Fund, part of that country’s much broader push for entertainment of all kinds.

The huge increase in M&A in the quarter was driven by Take-Two Interactive’s $12.7 billion acquisition of mobile publisher Zynga and many smaller deals in the growing sector for blockchain-based games, technologies and platforms.

The M&A totals don’t include the big one: Microsoft’s planned $69 billion acquisition of major publisher Activision-Blizzard, announced early this year. That deal continues under regulatory scrutiny but remains on track to close in the first half of next year, according to Microsoft’s quarterly earnings announcements last week.

The only sector that hasn’t grown is IPOs, which declined across the economy during the broader 2022 downturn.

“With three for the first and second quarters, the number of companies with IPOs has returned to pre-pandemic levels, while market caps have fallen significantly because they were all smaller companies,” DDM wrote.

Investments are “slower but still strong” among blockchain-based game companies. Blockchain based games like Axie Infinity

AXS2
have grown rapidly and have generated a lot of interest from investors.

But the titles, many of which employ a so-called “play-to-earn” mechanism, have proved almost as controversial as they are popular in some gaming circles. However, investors still love the space, and their dollars made up a significant portion of the quarter’s overall investment pie, 44 percent if the outlier Sony/BIRKBI/Epic deal closes, according to DDM.

Of particular interest, the report said, are the new ways blockchain startups are using tactics other than traditional equity investments to fund their startup costs. Increasingly, these games use token releases, NFT drops, and similar digital components and campaigns that give players a bit of ownership or other in-game benefits to buy into.

“What is clear is that companies whose game projects include play-to-earn mechanics, tokens and/or NFTs continue to drive investment,” the report said. “The diverse nature of their deals and offerings of stocks, tokens and/or NFTs has changed the way gaming companies can attract investment, making early raises easier to achieve.”

Launch of mobile publisher Jam City at the end of 2021 from Champions: Ascension being part of a new blockchain-based development department is just one example of the trend. The company sold 10,000 NFTs of its champions to fans, who in turn will be given the right to help determine the game’s lore and direction when it finally launches.

In terms of methodology, the company noted that its findings may differ from others because it includes the value of the investment, not the resulting imputed value of the recipient company, when calculating its totals.

.