Game Biz #1: Game Industry M&A [EA, Zynga, Glu, and More]

hello everybody we are here the three of us myself joe kim chris petrovick and eric cress and we're starting a new kind of series maybe it'll be a series we'll find out and we'll just talk about some of the big moves and potential strategic moves that may be happening by some of the bigger players in the industry but before we move further chris can you talk a little bit about your current role and there's been some news about you joining fun plus but maybe you could tell us a little bit about what you're doing over there yeah awesome um yeah i am now uh i don't you can't tell from the screen behind me but my family and i moved to uh switzerland in the zurich area as of the new year to start as chief business officer for fun plus our corporate headquarters is is here um you know people may or may not know a lot about this company uh you know i'd like to refer to it as the biggest little company in mobile that nobody's heard of but they've been in business for 10 years

andy and team have built a great decade old business uh in gaming started out on web moved to mobile they're a market leader in the forex strategy space with three hit games 1700 employees around the world we have studios in japan china russia sweden business office in barcelona we've got operations in the u.s and obviously headquarters in switzerland so it's a pretty big operation uh tremendously passionate group of game makers that focus on people and product and it's just super exciting to uh be here as a as a cog in the wheel to help them grow and obviously with the good fortune that i've had of learning uh my way through uh kabam and most recently zynga uh you know i'm excited for what's what's at stake here for the company so should be a fun fun year and a half two years and beyond all right and the little known fact about fun plus is that first of all andy is a freaking animal right the guy's a machine dude he never stops he already built a

billion dollar business and sold it and now he's built a multi-billion dollar business with the games that they're doing right now so it's pretty he's pretty impressive dude and uh he has a lot of cool people and great people around him including shanti and graham who are running uh the investment arm uh for that they're separate now right they they are separate yes but they are affiliated to some degree but yeah they started they spun out and started a separate fund called transcend exactly right got it got it yeah andrew sheppard just got hired there to start fun too so shepherd yes he's back thank you davey love it he was he was gone for too long you know but he had a baby and see i my theory is that after six or eight months of having a baby he's like get me the [ __ ] out of here right let's get back to work you know or he's like freezing his ass off in austin one of the two you know like he's got to get yeah yeah back in the game yeah it's good to see him again yeah good good i i think you're at a good spot hey thanks yeah but diving into some of the big

industry topics i thought we could start with ea's acquisition of glue and eric i know you've talked a little bit about this but before getting chris's take good move bad move could you what's your take on this again i mean i have to stop myself from throwing up in my mouth when i think about the valuation but besides that part i think for ea given where they were in mobile and have you know really kind of little resource and little product uh makes sense right jeff carp can say he's actually doing something and you know they grow their revenue they almost double their revenue in overnight they get three access to three two and a half maybe big franchises um and then they have the optionality of using tap sports for other sports that they license potentially and also maybe getting some synergies with other projects they're working on it's just i don't think glue has that much depth of development and then but the second part and is that i think glue was looking down the barrel of a

gun like they had nothing right and so like next year was going to be really tough for them to grow a post post-id post idfa you know post covid uh their products in the pipeline were garbage and they're having they're having um issues with design homes so they didn't have a choice really i think the only way they could actually improve shareholder value over the next 12 months was to sell themselves you know and i would not say that for zynga right i think zynga is still in a really good position what do you think about ea acquiring glue to be their sort of m a platform and that that's kind of how no nobody where's that there's that view no one wanted to work for glue to begin with you know i mean i think they they were not well like uh you know there wasn't a lot of interest in glue generally speaking from a from a perspective of but i mean i they have more resource you know always having more resources good that frees up other people to do other things you know but i i imagine a lot of those execs are going to be gone from glue within the next six months if i were to guess

and then before the acquisition zynga was raising a bunch of money and there was a lot of speculation that a two billion dollar target who could that be is probably glue but chris i know chris to the extent you could talk about your your thoughts in terms of ea's acquisition of glue what do you think and what wouldn't it have been better at zynga instead of va so look i mean i think eric you know eric is a master at the blunt force uh uh assessment which is spot on but i think there's also nuance that needs to be appreciated which is you know um my my my guess without having talked to anybody about this other just just myself is that there was a lot of pressure on ea to actually deploy capital and mobile because they've been dormant and absent from the m a cycle for a very very long time the interesting thing is is that you you know the the conventional wisdom in the industry is that you have leadership that is a combination of not interested in the mobile sector um and and uh value oriented in terms of

using capital and so you you have a deal that flew in the face of both of those which to me speaks of external pressure market pressure on them to do something right and i think they had a known quantity with nick and team that were former ea management in their backyard so the the integration was going to be easy it wasn't like buying a you know something halfway around the world and having to manage it remotely it was you know uh it was a known quantity it was it made sense at this moment in time based on the existential pressures that they were having in the market and it checks a box at the very least and at the very most it gives jeff and team a platform from which to do more um and they're gonna need to do more uh you know i think the synergies can be easily realized i think you know ea's a big enough company where if the acquisition doesn't do well you can hide it and if it does do well you can highlight it um whereas in a smaller company i think those the the good and the bad would be a lot more obvious especially the bad um i think you know anytime you're

talking about a control premium on taking a company out from the public markets that becomes a harder pill for some to swallow than others um i personally if you know if and when i ever would have done a financial analysis with my team and i on that i would not have paid that for glue but you know like eric knows and you know there's you know in the market there's always a willing buyer and a willing seller that are willing to meet at a price and so that was just in my mind just to confluence the factors that led to the deal um and and and why ea won out versus others yeah and i'll just i'll just say a couple things is that like from the investment community people that i talk to on a regular basis uh they're already talking synergy right so there's a certain pr value of doing transactions like this that kind of allow them as as he chris most eloquently said is that if it works out well they got all kinds of pr if it doesn't work out they'll talk about other things you know so like and so like there's right now there is this pr like the synergies about sports and like you know design home and

all this other stuff them working on potentially working on fifa and stuff which seems complete nonsense to me but um but it works like they can spin it and that's how they're spinning it with investors and it works even though the deal was super super dilutive right there's just no way a 10 margin company going into a 30 margin company could be a creative so they had to like overcome that nonsense and of course they paid so much money for this billions of dollars which makes no sense so anyway so right now it's kind of working for them and what's what's crazy is what will happen this is my prediction is that they will have a series of announcements all year around mobile which will maybe or may not be attributed to this glue acquisition but regardless the spin and and the pr machine is going to keep working over drive to show that they are actually making efforts in mobile and that that's the value of this acquisition for them right there's not other many other companies that could have used that as a value the way ea is so anyway that's kind of my thinking on it right now

i do have to say as somebody that sits in a lot of presentations from investment bankers i'm just happy to no longer have to see the glue logo and powerpoint presentations and have to talk about why it is or isn't a good idea for me or my company or the industry so i'm just glad they found a home and we can move on all right the final thing i've got to say about this and i i really want to get chris's perspective i don't know if you can but these ea has been sitting on four billion dollars in cash for a decade a decade and then the two acquisitions they make are codemasters and glue i mean what is going on like it blows my mind and that's why my investor guys are like dude you guys been sitting around on your hands you could have gone after all these companies like graham and small giant all the things that zynga picked up and you just now you're buying glue and codemasters it's like it's it's they didn't have chris i would not have spent four billion dollars that way i i i was busy spending almost that much in a much different way and it turned

out pretty well and maybe one last point like so there is some sort of word on the street in terms of like leadership shuffle igloo eric sounds like you think there's there will be a shuffle and i know we've talked privately privately about some of the stuff i've heard chris from your perspective what do you think how do you think that plays out do you think that existing you know for ea for mobile does that stay put does jeff carp bring in a team uh and kind of lead the charge what do you think happens there so i'll just talk in the abstract in terms of what just makes sense on paper right so whether take it out of the of the equation of glue plus ea just put two companies together of those kinds of characteristics and what you need to accomplish which is you need to show a positive return on your investment and you have to eric's point you know create an environment where it is at the very least not dilutive and at the very best continually accretive and what you do is you just get rid of duplicity right you you layer the the small organization under your map and you see

what's duplicitous especially things that are more commoditized like management and back office and administration and central staff and you really if it was me i would be leaning into it doubling down on the the the real gems in the at the studio level and make sure they stay around for a long time and are incentivized to run the continue to improve the running of the live games and continue to invest in in bringing great new ideas to the table but synergy to me in this case can be easily realized without a lot of friction and in a really relatively short period of time just looking at it abstractly so can i translate that a little bit there it is remarkable to me to listen to chris talk about these sorts of things and i said this the last time we got on it's like he is so freaking nice you know so basically what they're gonna do is they have to make the margins work right they have to get the cost under freaking control so they're going to keep the development teams and they're getting rid of the rest you know for the most part i think

that's what's likely going to happen but but but we shall see right we shall see i think the one thing about the one the one thing you guys have to understand about um uh executing on a vision of synergy is that it it's you know there are there are humans involved in this right and it's not just what i was articulating which is numbers and dollars and cents right and you're you're talking about a company culture you're talking about a company identity and a brand and a way of doing business and you know treating them like numbers on it on a page on a spreadsheet you know and and and you know hitting copy and paste or delete or whatever the case may be it's you know there's there's a lot more uh subtlety that has to go on and a lot more uh you know friendly treatment um that you have to embark on in order to make the the culture and and the the vibe stay positive you can't just wave the proverbial one and just say hey you know day two you know this this third or this half of the layer you guys are gone here's your check goodbye because that has a downward ripple effect on the rest of

the organization that came with so it's you know these kinds of things are never easy they're never pleasant but they can be done in a way that's that's sensible and and friendly and right and so i expect six months from now you know six to nine months from now is when you'll probably start hearing more but not before then because it just it just needs to be done properly okay right and that's like you know sorry and i do it i i'm just obnoxious just to be obnoxious but no i know these transition teams are in place the transition plans are in place like there's people responsible for this at the hr level finance level like i mean i've done these transactions before too and you're right it's it has to be done tactfully i am just my my job is to figure out what is the ultimate result in six months like what will likely happen in six months so i can actually articulate that to investors and say hey this is not that bad of an acquisition from an evaluation perspective because these quote-unquote synergies will will occur and and they will make a much more lean organization that will contribute

so i i flippantly say these things and i know i probably upset people that work at glue but i'm just saying that is what the result will be and it has to be chris is chris has now officially tempered me a little bit this is good this might work all right and then maybe now shifting topics to zynga and chris obviously there's there's probably going to be a bunch of things you can't talk about but very interesting news in terms of some of the announcements with respect to having zynga start to you know expand into ad tech for example and uh the plan to kind of buy at ad tech companies like you know dsps ssps mediation mmp and then also the recent announcement of buying that um the studio in canada or actually is it seattle or san francisco the san francisco and i think presence in austin too yeah yeah right right right so eric chris what do you think i mean i've already i've already created

other videos that talk about this stuff i am so i'm interested in them doing this like vertical integration with ad tech stuff so i'm not even going to talk about because i don't really care i am actually kind of excited about getting the uh oh my god i forgot the name of the game ah torchlight torchlight i kind of like the idea of getting the torchlight team it feels like a you know an aqua hire for the most part it doesn't really feel like an acquisition it seems like they may be struggling to some degree because the second game didn't do all that well but they're a good team and they built a pretty good game and if you're gonna make a shot on goal of doing a free to play cross-platform pc rpg mobile that's not a bad place to do and you you in that sense there is a lot of synergies right because you have like this huge resource in front of you with all this money to invest in teams and you know bringing in your mobile expertise and free to play expertise and they could actually create something pretty cool and that's a good way of of you know testing the waters and getting their feet wet on on a pc slash free to

play on the flip side the natural motion announcement of a game on on uh on nintendo's switch makes no sense to me that's just that is this pr nonsense but this actually i kind of like i kind of like it i'm uh i'm excited about that um i'll let you comment on the ad tech stuff well i i i think yeah i i think what you guys have to pay attention to is you know frank and team have been so tremendously consistent in their messaging around laying the foundation and the groundwork for what's to come if you like eric does i'm sure listens with bated breath on their earnings calls um you know they continue to throw out nuggets and drop you know you know drop knowledge and information on the market in terms of where they're going and the great thing about that team is they they do what they say and they say what they do and um it's no surprise that you know they're looking deeper in the ad business because they've said all along that you know advertising is a material part of their business and it's important to them and

and words with friends has been important and relic games is important and so with the you know with the looming changes that are happening in our ecosystem with idfa with the the kind of moves that aplomb has made it makes people really stand up and take notice and re-evaluate to perhaps recalibrate what it means to be a gaming company uh going forward you know and so the walls collapsing you know in our ecosystem on multiple fronts whether it's advertising versus game development whether it's you know uh platforms like we just talked about with that with that acquisition these are all things that that are part of what a company should be thinking about as they're trying to continue to uh stay as a market leader or be relevant in this ever shifting landscape and so i think you know regardless of whether it's an interesting topic or not it's relevant to the zynga business because they have put a stake in the ground long ago on advertising as a as a revenue stream and business model and so they need to uh obviously you know continue to grow into that and the cross-platform thing has been something that has been near and dear to

to the team's heart there for a while and so it's just great to see them continuing to execute even without even without me there uh which is which is the sad part but uh but i'm super happy for them and so man maybe so we don't put you in too sensitive of a situation chris but in terms of that that bigger trend and then it seems like we're talking about two trends one is the vertical integration between studios and ad tech and on that side i think there's two directions you can go right which is content companies acquiring ad tech companies and so whether it's like a you know a platika a play rex or a wildlife trying to move into that in that direction similar to zynga similar you know um in that way then kind of going from ad tech to content like applovin has done and so potentially seeing a company like you know obviously a company like iron source makes sense to move in that direction do you guys have any thoughts in terms of speculation as far as bigger movements

that'll be happening um you mean as between game developer publishers and ad tech companies like who who makes sense i mean i i think i think the thing that um is important to know too is that you don't you don't necessarily need to be thinking only at the the top of the spectrum of ad tech companies right i mean those ad tech companies in and of themselves are extremely valuable they operate on business models that are in some ways completely antithetical to a game developer publisher uh operate on different margin structures you know that there's a lot of you know i think eric and i have talked about this before i've always had this gnawing notion in the back of my head and i think it's somewhat outdated because the market is now indicated that it doesn't matter anymore but i used to be really nervous about game companies getting into owning and operating ad tech because as an m a guy i would imagine going after a target that would be that's in the ad tech space that would expect full value as they should for the business that they've built right and that business that they built means

servicing companies that are ostensibly your competitors right so you as a game developer publisher come in and buy an ad tech company and all of a sudden those clients are looking like they did at applovin for a while and said why am i going to continue to pump money in through this channel because i'm lining the pockets of now a competitor right and now they're going to get my my access to data from my games to feed their business and we had heard you know uh uh insights and stories of game companies pulling spend from app 11 but then eventually relinquishing to the broader pressures of the uae ecosystem and we're saying you know what i can't not spend there because they in many cases perform very well as a channel and that just shows how beholden the industry has become on user acquisition and and ad networks and you know companies perhaps want to change that and flip the script a little bit and become a little more self-reliant on building an extendable ecosystem for their own titles and use methodologies that can still generate some meaningful data from users

while they're in that publisher ecosystem to kind of uh you know hedge against the the the downside risk of idfa so there's you know you you you can create a great ad network without having to buy at the top um so there's you know there's all sorts of different ways to approach it but i do think that all those companies you listed have uniformly validated in the market even though it's uninteresting to crest that it's necessary to look at as an adjunct to your business right if you're spending a lot of money in advertising and or if you're making material money and advertising it's important to have that whatever you want to call ad tech as and it comes in many different shapes and sizes um and forms but it is important to have as a fundamental aspect of a scaled business right and it might be good for our audience to understand that there's actually potentially two motivations right so there's there's one motivation in terms of and we can talk about this in in a minute as far as like m a targets are there like it for a company like zynga how are they going to

get additional growth if a lot of the targets are if there aren't if there's just not a lot of targets for them and the second thing is to the point that you made chris in terms of idfa deprecation if for example uh so so one theory is that by buying an mmp for example because they have access to a lot of data and rp profiles against a lot of different types of games if you could for example within the context of apple's sk ad network take an early conversion event and be able to map that to the data again that mmps have so that you can kind of try and understand well this conversion event probably means we're going to see this kind of rp profile then that data could potentially be used uh to create competitive advantage so that there are no don't forget also that you know publishers are are looking at idfv as some kind of additive you know ingredient in this mix right so then that's another top point right once a user is in your publisher ecosystem um then you you have that trackability

while they're well while they're in your portfolio game so i think it's just a way for the industry to try and cobble together what will eventually be more more stable solutions in the face of apple and potentially google you know not not providing that data directly yeah and i think the industry implication i'm probably most concerned about mmps whether we're going to have an independent there's just not that many outside scale right there's like there's apps flyer attention singular you know you take a couple of those out and you're basically yeah but then what does the industry do right if we're so reliant on ua as an acquisition source right and using those those channels or those pipes to acquire users like there's again it's it goes back to like a real old analogy which is you know back in the days when when valve you know uh started getting traction with steam you know their competitors were like why am i going to put my game up in this in this store because i'm now feeding you know feeding valves you know development capabilities to keep competing with me but there were no

other alternatives and so you're just kind of stuck at some point i think the same is true as a loose analogy with the ua ecosystem you just have to go to where the you know with the channels that bring you the best users and you worry less i guess you're forced to worry less about the implications of them taking your money and your data okay and eric's bored let's let's move on to the next topic which is okay how about glue [Laughter] so continuing maybe actually to push on that theme about you know are there a lot of m a targets left how much more can existing studios continue to grow through mna so maybe one uh chris do you have any thoughts in terms of the relative positioning strength of companies like still front embracer eg7 those those the the what i guess i'm calling the the consolidators and then also this view in terms of are there good

m a targets left or you know from a supply perspective do we not have that many and you know what i i think i mentioned to you before chris that you know when i spoke to embracer and and lars lars actually feels like there's actually plenty of targets plenty of companies out there and so what what do you think man this is the longest i've seen crest be quiet so i'm almost tempted i'm almost actually on the mic i want to hear how you respond to this all right all right i want to hear the spin dude spin it so here's what i'll say i i think that lars is correct as it relates to his his approach to m a and and you know my my answer to the notion of there not being uh sufficient quality targets is that's kind of an overstatement because there are so many ways to define what a great target is for a single company at that moment in time some of it is just pure scarcity supply demand whatever but some of it is filling specific needs like the most recent uh deal that zynga just announced is probably nowhere close in size or scope to what peak was or any of

the other ones but it filled a very strategic need right and so they're they're executing that in this particular cycle lars is a holding company like an iac interactive corp was and is and web businesses and he just is filling the the the trough with as many farm animals as he can of different sizes and hopefully he has a real good working farm but he is not he is not running a business model or a playbook like zynga which is trying to create a harmonious ecosystem where one plus one can equal three in the near term he's just a holding company that's bringing all these great businesses together and allowing them to operate pretty much independently of each other and hopefully some organic goodness comes out of them being in the same company but there isn't anything at the parent company level that is that glue right that that allows for these companies all of a sudden rally around a central point of goodness or of benefit that they can you know they can see very clearly um but in many cases you know these companies don't want it don't need it or had no

other choice than to join i think still front you know runs a similar playbook and i think if you look at the the nucleus of that company it's a management team that just likes to run m a there's not you know there's not a ton there in terms of legacy or lineage like a zinger or platika where you bring this platform or this company plumbing that you can plug into and all of a sudden you unlock all this additional value right but they're getting credit in the marketplace for bringing in you know bringing in these deals i don't know that that's going to last um but it's worked so far i i got to applaud lars on doing the the gearbox deal that one blew me away i was not expecting that but i think if i'm randy and i believe in the health of my personal business and i own equity in a company pretty substantial if i you know it's just like the the you know the the what you saw at zynga where if you as a company that gets acquired performs and you hold equity your equity is worth a heck of a lot more in the public markets by virtue of your performance and randy probably has the utmost confidence that he's going to continue to grow at or above his his past success and so you know for him

that it's just a look it's like a liquidity play right he gets to validate himself in the market and see the increase in value as a result wow god man it's like it's like an art form with you chris i mean it's amazing like how he used to basically say the same thing i say but you say in such a nice way and i i i i am just awestruck um but enough of that so i guess what i will say i've actually heard a lot of criticism on on both embracer and still front now across different people that are talking about and one of the criticisms i heard about embracer was that lars got up there during your podcast and he couldn't really even explain what the strategy was you know he was like so i was a little bit shocked at like like what is the synergies what is that what is the way in which they're going to manage these companies that that they they that they can at least predict success right but

i it was like isn't the isn't the prevailing model the decentralized model isn't that what everyone see the thing is i agree with a decentralized model but i what i don't agree with is not having any type of controls on on these companies and leaving them to their devices right so it just didn't seem like he even had that even as a contemplation of of how to keep these guys on task right not to let it go off the rails right and so and the other big point i'll make on the gearbox thing and i actually agree with chris i mean out of all the transactions they've done gearbox that guy pitchford is a lunatic right i i never thought that he would actually ever sell his company for whatever deal that he's there doing and i understand why he's doing it from listening to him talk about it like you know he's still participating in any type of upside but him generating enough revenue to justify a billion dollar payout in six years seems impossible as i've said before but uh let's let's see what happens um but what i'm try what i've tried to

articulate before is like look the stock is probably down maybe 40 30 percent since they've done this deal i i didn't check the date but the stock is you know with this correction that we're seeing in the state at home stocks more or less um you know that stock continues to fall right if it goes back to what i would consider a reasonable evaluation you know like um is he gonna be as motivated right you know because that's you know he's a lot of his ownership is in that and so what happens with all these deals that they've done over the last six months in which you know they've seen their stock this meteoric rise and now we're seeing a correction as as we often see so that that's that where that's where things could just completely fall apart if people are not motivated by you know by uh by you know the performance of the stock so anyway i am both these companies scare me a little bit in terms of their long-term viability but um and both have i think to your point let me just speak on the decentralization thing because i think one thing that that we need to remember in that

equation is that decentralization is a prevailing wind and it is a good thing and we see it happening in m a across the whether it's platika zynga embracer still front wherever but you also have to realize the other side of that coin is that for all the decentralization that that happens and for all that goodness that energy to the benefit of the developer the developer also wants to know that when they need help that help is there right because we what we know in this industry is that success is not guaranteed and it's not linear and it's and it's hard and so to to be in an environment where all of a sudden you have something going wrong with your game or something going wrong with your economy or something going wrong with your customer service or something going wrong with your live operations and then who do you turn to in those environments right do you you want to turn to the parent and say mom dad help like i need help and can you send me some some knowledge can you share with me your wisdom can we troubleshoot this together can we borrow some engineers and pms that have gone through this before can we look at your data to see or you

look at our data to see what what's been going on and then that parent comes in and helps uh triage the issue and then goes back away and that's that to me is the is a much better harmonious model than than complete decentralization where you can't turn to anybody for help because you all need it another great example of this is is something that we do i did a ea at kabam and and and i'm sure zynga is that let's say one of these teams really wants to get a license from marvel right where's the resources for them to do that do they have to spin up their own legal team right is there any centralized resource whatsoever that they can go to and say hey we really need you to negotiate this for me or are they kind of at their own mercy right um and when you have more sophisticated people doing that then the license first of all it's hard to even get the audience for the license per se but if you have no leverage right and so like anyway there's all kinds of deals that get done behind the scenes to help facilitate building [ __ ] right and and without that kind of resource and that's what

scared me about lars was like that wasn't even part of his thinking at all it seemed it was just like more hey we're this is not a consolidation we're just you know building teams man building teams you know like you know they did say they have they did say they have like a pure tribe network where they're collaborating and sharing best practices you can't run a team with you can't run a [ __ ] company with slack for [ __ ] for [ __ ] sake right like you got you gotta have some central [ __ ] going on to to manage this stuff and so like it's just it's a little bit scary for me and maybe it's because i'm so like traditional in my in my thinking and i just i can't think out of the box like i'm not very googly right per se but like it just scares me like like when when so and the other thing i i want to say is like things are going well right right now because the stock's up everything's what happens when things start go bad right when's when products don't ship you know like you know they get sued you know like what what who's gonna who's gonna pick up the pieces man you know you know it's interesting i've had a similar i've had a similar concern slash observation around um

applovin although you can't really deny with with you know how they've been able to execute up until now but my concern there has been again similar to what i just said which is they are great at bringing in companies with live games and helping them optimize their ua right and and and leveraging the data but what happens when those studios want to create the next new game like who do they turn to for help yeah like who who would have loving has a history of making games and can help them through the the game development framework process and the green light process and sourcing and everything like all the stuff that goes in as you know uh better than i do but it's you know what happens there i i totally agree with you kristen not i'll i'll add one other additional nuance that where i think app 11 is going to have problems is that as it is kind of an advertising company and being more focused on top of funnel i think they're going to understand a lot of the ways to compete and to gain competitive advantage for casual games and games that are closer

to top of funnel but for like mid core hardcore games with longer rpus and being able to understand how to optimize the back end i think they are going to really really struggle so machine gun did you guys see the s1 i mean they they broke out machine zones revenue for one quarter in march of march of 2020 they made 73 million in revenue and lost 108 million in in earrings i mean literally i almost threw up on my mouth when i saw this i was like that is crazy that is crazy and they acquired this thing for 500 million i mean look those app loving guys i've heard are geniuses but when i look at this that's scary that's scary like riding that ship i mean how could you lose so much money i mean they had a like a 73 million dollar interest expense right so anyway wow wow that is uh that is quite a uh uh fall for mr the machine zone guys

anyway i was just looking at it someone reminded me to look at it now it's uh blowing me away all right all right i think going back to your comment about the the targets again you know without without us going down the rabbit hole of naming specific names i think the good the good news and the optimism that i have about this this topic is that if our industry has shown anything is that there's always uh there's always new good and great products and teams that come to market either expected or unexpected right and so you know nobody would have thought however many years ago that mediatonic would have been acquired by epic because they were their business model was mostly work for hire right and now all of a sudden the industry's paying attention to companies that have done long-term work for higher engagements on the thesis that they've learned so much in the aggregate that the next time they put their efforts toward their owned and operated game that they have a pretty good chance of making some success of it right so you know there are there are different incarnations of good that that exist in the marketplace at any given day and different definitions and needs that companies

have to fill the m a funnel that they that they've created for themselves so i don't agree that there's a lack of quote-unquote good targets it just matters how you know what your definition is at that moment in time and it always changes should we not talk about specific names can i bring a few up you can bring them up all you want i'm just to let let's talk about it all right the the three names that come up all the time and people keep speculating and they're still there tactile wildlife moon active what's going on with those guys and maybe chris if if you have sensitivities i mean no no no worries no no no sensitivities no no i'll i'll i'll give it a shot and then kressel kressel interpret for me in his in his in his words but uh so by the way three great companies that are prime examples to me of ones that are showing that even in a mature market that we've been experiencing in mobile that it's possible to create breakout businesses i am a die-hard lilly's garden player i

mean i continue to play every day it's funny because my playing habits are lily's garden and then call of duty mobile and i'm pretty much max level on both and i don't fit the profile probably of either of those games but as borjan and team have just built an amazing business there um and i think he you know knowing him as i do he has aspirations that are long term in nature um and and he's very much all about himself proving to himself and and his team and the community that he can continue to build great product products and also having a wonderful place to work out there in copenhagen so you know they're under no no pressure um through themselves or their or their investors to do anything and i think they'll just keep doing what they're doing the brothers down in brazil built another amazing business um super super smart um and now they're trying to you know expand the the scope of that in order to leverage what they believe that they built kind of like network you know with like a publishing platform so we'll see how that goes um and then moon active another business

that just created some innovation around an existing game mechanic um raised a lot of money and now you know they're they're on their way to doing whatever they want so you know i think in all those cases they are not lacking for inbound interest i think if they're doing the right thing they're staying focused and continuing to grow value in those businesses until there's a natural inflection point but i don't think they're so early their investors are so early nobody's pushing them to sell unless they just get some crazy offer that is five times more than what they're currently valued at so i don't see them transacting anytime soon eric any thoughts i don't know i'm starting to i'm i i i don't know my my it's more like kind of the investment thesis around the around the space right now is that like we feel to be like we hit the tippy top you know a few months ago and we could be headed into a more of a a drought in terms of valuations and

if i were any of these companies i'd want to sell like you have to remember and back sorry back to this machine zone thing they were they were worth 5 billion at one point right they got bought from 500 million and i'm like questioning 500 million you know and so like there's a there's a time when you have to basically pull the rip cord and say hey look this is as good as it gets and you know maybe they're fiercely independent they want to do their own thing and and control their own destiny but it ain't going to get much better than this i don't think i'm even like when we did a call on roblox and and you know roblox is going public next wednesday evidently um and i think there's just there's actually a little bit more hate against roblox because their their targeted growth is is relatively meager compared to what they've done in the past and so like like sentiment i guess what people have to understand is sentiment changes like it always does you know there there was a motion when when ea was at 15 a shared it's like at 140 130 now right

because people didn't believe there was going to be a next gen console cycle right they thought mobile was gonna take over the world right and so anyway so i think all this fervor around the industry is a little bit frightening it's a little a reminder of the times before the crash the last time so anyway i don't know much about specifically about these particular companies i'm sure chris knows a lot more about these guys than i do but uh it it is it is a time right and if glue goes for 2.1 billion then jesus sell for jesus christ that's i think the interesting thing is you know there there's kind of a dichotomy going on here which is you know the there's a perception that valuations are continuing to increase although i think buyers because there is a limited market of buyers and all of those buyers ultimately have to be beholden to smart transactions that can show accretiveness over time so they have an artificial ceiling beyond which they're not going to go which and if any companies looking for beyond what what the buyer's market dictates uh you can call it a seller's market but

at the end of the day the more aggressive you are in your self-valuation the fewer fewer uh you know uh buyers that there will be there to bite and then when you have a limited playing field then you can go through a process that doesn't make its way through and then all of a sudden you're kind of tainted because if one buyer passed on you then why would other buyers be interested right something's got to be wrong so to speak but i've always i've been fascinated by this dichotomy of of i would have thought that going into 2021 that m a would have been holding its collective breath or at least taking a little step back to to let the idfa does settle right um and recognizing that if you go too too much in on on an acquisition at a premium and then that business gets affected by idfa in 2021 i would have expected for some of the big guys to hit just hit the pause button a little bit and wait for the dust to settle before deploying capital again at the stages or at the levels that we're talking about yeah i would that yeah me too what about some of these smaller names

now there's a bunch of names at kind of the the the smaller size right but guys like let's say sibo north current pixel federation zepto lab nordeus guys like that anyone in that range that's more interesting than others any thoughts on some of those names yeah again i'm going to go and i'm going to put my m a hat on and just talk about how i think about the world both these specific companies and companies like them so i think a i'm going to look at whether it fits with my stated goals and strategy for this moment in time b i'm going to look at the the the um the fundamentals of that business c sadly enough in this age of covet i'm also going to consider whether into what extent i as a company and well-equipped to manage a remote team that in some cases may be in a in a in a more sensitive geopolitical area like zeptolab um and and then d just how are those businesses going to fare in in in this and what chris and i were just talking about and joking about which is this idfa

uncertainty um so all of those companies have their own merits what i like about most of them that you listed is that they've been around for a long time and withstood the test of time some of them have had rockier roads than others um i i think zeptolab was early success followed by you know maybe not as much success nord current has just been slow and steady the whole time nordeas has just demonstrated that they're excellent in in sports they've experimented with other categories but are ultimately staying true to soccer or football and also you're mentioning companies that by and large are in these far reaches of the world outside of the typical centers of excellence which which is where i fished a lot right during zynga like we went all over the world and found the best talent and it shows you that the talent could be anywhere um but that also brings with it some risks if you're not operationally set up to manage remote teams covet or otherwise you know that's and i think i think in this age of covet i think i talked with you guys once before i was i was always concerned about um the inability to to get on planes and

go around the world and establish relationships and meet people and have dinner with them and their families and get to know them and talk shop and really establish that relationship that you need as the dating precursor to eventually marrying through m a and doing i've been just phenomenally impressed with the level of m a that's happened that's had to be virtual and the dollars that have transacted on a virtual level like that to me i never would have thought that it would happen and have will have seen deals that ultimately hopefully will become as successful as they are are positioned to be but you know i i i guess i was proven wrong on that but i still believe that nothing there's no substitute for that kind of um long-term relationship longevity as as getting you know getting face to face and getting in there in the business and understanding it backwards and forwards so those uh some of those targets are are tough for some because of how far away they are and and where they're located but um they're ultimately the you know the merits of their business you can't you can't deny them all right uh so maybe i could just ask so just

talking about geographically safe region i'll just give you two more names our our neighbors in canada two companies i'm very surprised have not already been taken out that first is ludia and the second is behavior interactive do you guys have thoughts on these guys no i this is not my this is not my bag i focus on the republican trading companies not all these little ones i do know something about these guys but i really yeah go ahead well i will say um hold on though just give me a second so you know this is petrific's business right he's like boiled the ocean for like a decade no longer than that 15 years right so you're just getting you you're learning how the sausage is made you know like you're getting all extracting the value that he's created over a 15-year career in this [ __ ] right so just just be clear on what you're asking go ahead so on those two i love i love canada um different parts of the country have different economic benefits right at a

governmental level which is tremendous that companies can take advantage of i've always felt that montreal i know i know that's where behavior is ludi lydia i don't believe it's in montreal if i remember i think they are montreal so anyway so then it further goes to to my point that in north america that was always in my top two or three locations of centers of excellence for gaming um maybe not as broad based in terms of you know going beyond console and pc and really uh leading the charge on free to play and mobile but i think they're starting to catch up but behavior interactive is what 600 people um there aren't too many companies on the m a track that are looking to add 600 people to their business i don't care how good or profitable and by the way you also have a business that's a mixed business model right work for hire plus i'm owned and operated um that's also complex because you know i i never spent a lot of time looking at companies that were that didn't own their ip um or even companies that own their ip but had publishing deals

with my competitors that also you know for me personally it created a filter uh a bias um again so those kinds of you know and ludia i think has been owned by um uh what was a it's like a hollywood yeah yeah exactly um so you know and they've been around for a while so who knows if they're you know how they're available and what that would look like to to do a carve out so there are always complexities around the details right and that's why i said earlier nuance there's nuance in all this it's super important but again can't deny the merits of the business but their profiles aren't necessarily um neat and clean and and easy to digest all right well you know i thought this i think we could wrap it up here guys unless you have a final message for the audience but yeah i thought we had a good discussion kind of went up and down the major issues well ironically just to go back to uh to the the uh you know shameless plug for a second you know i think one of the things that's exciting for me at the front plus side is we're actually focusing a lot more on

the earlier stage side because that's where the company has had historical success which is investing in great talent both inside the company and out and fun plus has had a history of of doing early stage investments and that's where i'm focusing a lot of my efforts in the near term while you know keeping an eye on the on the long term you know potential for doing m a but you know we are very genre focused on things like uh strategy casual rpg open world sandbox and we're looking at great teams that are looking for value-add capital that are looking for for potentially publishing assistance um that are looking for new markets to be opened uh you know west or east um and that's where that's actually where we're really getting into the sausage making because you're starting to really you know like like your company with lila it's just great to see you know new companies sprouting out and still invested in this ecosystem and still passionate about making games and still seeing a pathway to success so um i think this this year for all the pause that may happen at the top i think a lot of great products are going to come out in services that you know from

from the ground up um as they're scaling into this uncertainty of of idfa and maybe by the time they launch in 2022 that there'll be a new paradigm or a new floor for for what the ua landscape looks like and then we'll be back you know back to our normal cadence and and crest can breathe again you know once uh once kind of this idfa apocalypse is behind us [Laughter] what do you um uh are you looking at both uh mobile and console pc or is it primarily mobile or what's what's your i mean obviously fun plus today is a mobile company but i have a soft spot in my heart for cross-platform i know i've been talking about that in to anybody that listened in industry for the last several years and i really believe that there are companies out there that will crack that code um and i'm i'm all in on that so you know uh cross-platform is something that i'm deeply uh deeply passionate about all right sounds good sounds like fun okay last question for me how do you like switzerland so far switzerland's great man hey my kids are

actually physically in school and i've any direction i look there's there's snow-capped alps and we're outdoors all the time so um that would not be the case uh at my old stomping grounds where fire season is now a thing and kids are still distance learning so i cannot complain and my you know super super fortunate to be here well we'll have to come out there and visit one day you can show us around absolutely actually apparently my office is in crypto valley so i'm starting to get a crash course and all things crypto and blockchain from the the nerve center of that that's a whole other category that's a whole other topic so all right nfts baby it's all nfts all right well i think that's it yeah thanks everybody bye awesome see you guys soon [Music]

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