Game Industry M&A in 2022 and Beyond! Miniclip, Drake Star Partners, & FunPlus Weigh In

hello everyone and welcome today we are going to be talking about the current state of murders and acquisitions in the games industry there's been a lot of activity over the past couple of years and even more recently but more interestingly what do we think will happen moving forward over the next year or so starting off 2022 we've already seen a number of blockbuster deals including take two's acquisition of chris petrovic's former company zynga and of course the activision blizzard acquisition by microsoft so today specifically we'll speak to first a quick review of some of the biggest deals over the past year second what are industry implications of the recent and upcoming potential wave of m a and third what can we expect in 2022 and beyond and with us today to speak on all of these issues and more are first saw chaudhry ceo at hit game studio mini clip second michael metzger partner at investment

banking firm drake star partners and third chris petrovick chief business officer at the number one publisher in 4x games fun plus games so i thought we could also start with just like a brief intro from each of you and maybe if you want to say a few words about each of your respective companies maybe starting with you sod yeah um hi i'm saad as you said i'm the ceo of miniclip came into the role probably about close to six months ago now um before when i was on the show i was a chief strategy officer uh concentrating mostly on uh m a and acquisitions and publishing um we've continued to do that pretty well here at mini clip we've acquired eight studios over the last three or four years um all of them have grown um significantly since our acquisition so we're very happy about that and we're planning on continuing to do that um but at the same time we're also um launching more games and building more

games internally and and still focusing on organic growth as much as inorganic growth and yeah things are going very well at miniclip we've had uh very very um strong quarters uh post the kind of lockdown pandemic stuff which we were worried about that not being the case but it has luckily been that way so you know very excited about the future and it's interesting times that's great to hear michael hi i'm michael metzger i'm a partner drake style partners it's a global investment banking firm about 100 folks across the u.s or of middle east asia and we advise on on m a lot of sell side m and gross stage financing last year has been also a phenomenal year for us with 50 5-0 close transactions and worked on a ton of gaming deals and excited what this year is going to bring all right and chris yeah thanks jk for having me back uh chris petrovic uh chief business officer

at fundplus as you mentioned have been here for a little over a year for those of you that don't know i like to refer to us as one of the biggest little companies that most people have not heard of i think by some accounts analysts have us as one of the largest privately held companies in all of gaming um which is quite quite a a great um uh company to be in when you think about who some of the other companies are in that space um before here i was at zynga for almost five years uh the greater part of four and a half to five years leading corporate strategy in m a um started in 2016 when frank joined and was part of the turnaround management team there and participated in most of the transactions um starting with the board and card studio of peak and culminating with rolex studios and all the ones in between which included gram games small giant the rest of peak games um and also was uh you know part of the conversation before i left and some of the other verticals and categories that the company ended up moving into so

um it's been great to see all those things executed by by the team there uh and and obviously the culmination of zynga finding a home with take two was also a good thing to see great so maybe just kicking it off with looking at some of the more recent acquisitions or acquisitions of the past year we've had some big ones as mentioned zynga activision blizzard from this year and so i thought we could start by speaking about how you guys would interpret some of those acquisitions and the potential impact to the industry and maybe starting with activision blizzard to microsoft from your perspective how would you guys interpret that acquisition and what do you think some of the major industry implications are maybe starting with you sod yeah i mean look i think uh there's been a lot of commentary on that um deal already i i think when i subscribe to the same thing that most of them have mentioned which is this is clearly a deal where

microsoft has acquired the best-in-class ip and for game pass that's clearly a future that the direction that they want to go down and having those studios and having that ipp part of that is is clearly going to be very important in the future um the success is probably the professor deal that they had before it's probably led them to see that that has you know that worked out well so you know might as well double down on that kind of side of it in terms of king and mobile i see that as a bit of an odd thing within the strategy i mean they're gonna have to consider what happens there it's interesting to see that there's been some management changes there i'm sure it's not related but you know it could be as well um but that's the one part of that that transaction which doesn't kind of kind of really fit so far you know in activision blizzard king it made sense but with microsoft and what they're doing i actually think it opens them up to some regulatory issues which they might have with apple and trying to do you know streaming on mobile devices as well

um but i think generally speaking it's it's it's a statement of intent right by microsoft and i think we were all surprised to see it happen um let's you know we can talk about valuation all we want i actually think it's probably a reasonable deal when you actually look at it and to where the 52-week high was versus when they actually pulled the trigger on this um but the implications are you know massive i think because activision was one of the big independent ones out there and now we're talking about a handful of other game makers who aren't attached to a platform you know at the end of the day microsoft is clearly trying to um become the platform around around this space and this not only underlines it it gives them a real dominant position um i do think it there will be some implications around how many aaa games will now come out and how much funding there will be before other studios to try and do this i think if you're not part of a major platform

now i'm not sure how you're going to be able to to essentially build those games without that support michael or chris any thoughts yeah i mean um i think it's a great move microsoft you know was looking at activision for many years and at the same time there's been a lot of rumors about you know activision being acquired by others disney was a one people talked about several years ago and you know it was also fortunate time from a microsoft point of view you know activision was reading i think close to 100 and they bought it around 60. so you know if you want to buy this is a great time and it was also you know my understanding was for the trick about by bobby kodak looking for you know an exit to some extent and my understanding is the whole discussion started just days after the wall street journal article came out and

bobby reached out to to phil spencer and the discussion started and i went fairly quickly and it's obviously a massive deal um so i think it was a smart move from a microsoft side right and chris maybe um a couple other points um i'd i'd really like to hear you speak about is i know you have a lot of experience in terms of acquisitions but when you think about the potential integration issues or will there be a lot of integration between activision blizzard and microsoft if you could speak on that and then the other point i know you guys at fun plus are very interested and excited about ip and the use of ip do you think there's a change in terms of like how much commercialization there is on some of the some of the ip from blizzard for example any thoughts on that yeah so on the integration point i think you know in these kind of situations where you're buying mature companies that are at such scale and have such established practices already that related success

um there's no need to impart any kind of integration other than the bare minimum of what's needed for example from a reporting perspective and i know speaking from experience at zynga um as a public company you know when we acquired studios or companies um that was where that was our starting point was hey you know as long as we can have a clear view into your financials and your audience metrics so that we can accurately report on behalf of all of us as shareholders that's our minimum requirement and everything else over time will become a discussion and hopefully an opt-in on on behalf of the company that's been acquired when they see the value and what you offer from your suite of services as as an enterprise um here you know because microsoft has experience running studios they know exactly what those cultures are like they know exactly what makes them tick and they know that that activision blizzard comes to the table with the lineage of successful franchises in ip that they want to continue um uh fostering and i think

going back to the logic for this deal you know i think it's really savvy of microsoft to to act so quickly because it shows how a big company can be very very nimble uh you think about what was reported about their interest in tick tock for example during the time when there was a threat of divestiture and microsoft's name was you know front and center quite quickly which you would not have expected that would have potentially been a a not a fire sale but a more value driven acquisition because of like you know regulatory pressures here you know the the microsoft responded to uh you know to a value um that michael just uh described because of where the the stock was given the existential issues that the company was going through so they had a you know 33 percent discount on you know from the previous high uh without even negotiating right um uh even though i would argue that they'll never see that 75 billion returned 100 it almost doesn't matter because you know the the product management uh is is around the stock price as a public company right so it's all about a creativeness of value uh more so than

thinking about individual games and in this particular situation that our arbitrage here was quite quite accretive um and i i do think that they will just let activision and blizzard continue to do their thing and to the certain extent king to what said earlier about the the regulatory issues you know king becomes such a small part of this equation now for the collective enterprise that i don't know that regulators in the us are going to single out the mobile the mobile part of this acquisition as something that is going to make or break i think it's going to be around platform exclusivity it's going to be around pricing those are the things that they're going to anchor on um i think the question is whether king as a standalone business finds uh that home to be more beneficial or less beneficial to be now part of microsoft and then do they do like what a t is doing and then peeling out you know kind of smaller scale businesses right because now king looks a lot smaller scale under microsoft's lens than it does under activision's lens um with a

lot less um collective wisdom around mobile so um you know integration will be light and the ip uh strategy will continue to be on course without interruption from microsoft uh is my as my belief you got it and maybe now talking about zynga and i know chris maybe we can like not start with you so you can i don't know what you can speak about what you can't speak about but maybe starting with you sod in terms of what you think the the sort of story synergy narrative is behind um that acquisition it'd be great to hear your take on that i mean yeah i mean it's it's kind of it's hard to go first knowing that chris is uh on the call of god he's got much more insider so i'll just you know i will take it from an outsider looking in i mean you know we know take two has been looking at mobile for a while right they are quite social point too dark naughtiest so they've definitely been trying to do things and i think you know clearly the management team said

zynga and us being together makes more sense you saw zinger starting to move into console as well they had they that acquired a a small studio to do something around that so they were starting to merge into it of course frank and bernard who are great um come from that background too um with their history at ea so you kind of do start seeing how the cultures start aligning between take two and zinger right and i think that was probably the important part because the reality here zynga is i don't think there's much like integration in the same way as as as what other you know transactions happen zynga clearly will be the mobile operators take two will continue doing what they're doing very well in the kind of pc console space and i think that's the divergence we are seeing um in in we've seen in the industry over the last few years you know you're you're your pc console company which has some add-ons with mobile which are very significant or you are a kind of pure play mobile uh

you know free-to-play first company and now with these transactions what we are seeing is that we are seeing that consolidation in gaming happening where it is well these are just you know these are companies that have content that you know operate in different ways so i think with take two they're probably looking at their kind of pierce that in in ubi and ea and activision and going well we're just light in this area we're very light and the transactions we've done have just not moved the needle as we wanted to do anyway in the grand scheme of things those other those other transactions were pretty sub scale compared to their their their core business and this obviously transforms them uh overnight with that that transaction so i just think you know it's it's the sum of the parts being much more valuable together as trying to compete themselves that's that's how i saw it um a phenomenal price i thought for zinger in the end as well but i mean probably justified definitely justified um but yeah that's that's the outside looking in kind of view i'll be very interested to hear what i know michael

will have some inside knowledge as well and chris certainly will michael is there a banking perspective on this or what are your thoughts yeah i mean on a high level it's to some extent the market is consolidating right and either by somebody you'll be eaten by somebody else and take two has made some moves modest size moves in the mobile space but not much and uh it's clear mobile is a massive market which they're you know not playing to a significant extent and building it in in-house takes a very long time and that just puts them front and center immediately so i think the diversification was one key driver and just becoming a key player in mobile was probably with a two key ones and i guess the price premium was you know a little bit surprising but at the same time it was to some extent also a little bit of a bargain because cinder was trading like it i i didn't remember

11 or 12 and they went all the way down to 12. yeah 12 66 yeah yeah five or six so it's like a 50 discount and and considering where they were trading over the last six months the premium they paid it actually isn't that high um but i think you know was a great move and it was probably also a great move on the zynga side getting a significant premium and versus continue to operate on a standalone basis right and chris would be great to hear whatever you can speak about but the more you know the more confidential information the better maybe i could also ask you one uh one potentially sensitive question which was that you know when you were at zynga you were kind of heading up a pretty massive run in terms of m a over the past whatever five years but it seems like that's where the majority of growth for xenia was coming um was this actually a good time for zynga to sell given that it seemed like they potentially given you know that m a

story may not have been there as strongly as it was when you were there like was it a good time for zynga to sell what do you think about that yeah i'll start with that question first and then i'll go back into the into the the the other one um look i think it was a good time to sell um because you know like many mobile companies mobile pure play companies you know 2021 showed um that there was a lot of headwind that was created by virtue of what apple had done and that that had no sign of of changing direction and if you layer in the the albeit longer time frame that google has presented but an additional layer of bumpiness that will come into our industry over time with google making these changes not as dramatic obviously because they've committed to doing this more long term um you know the the notion of pure play companies and it's no it's no surprise by the way that platika has announced that they're exploring strategic options as well right um i think if you look at the the the covet bump and then the

subsequent deflation of that bump by virtue of idfa the artificial highs that the market created for the mobile pure plays were not going to be reachable again through organic means anytime in the near future i think we all can agree that whether it's through ua or through even using licenses that getting organics is just more and more difficult right it's been made more difficult the reality that is the reality of our industry so i think there was kind of a you know a risk reward calculus about you know if i'm at zynga's shoes you know looking at the premium that was being offered relative to my my confidence and my ability to get back to that 52-week high on my own measure and any time in the near future um you know it seemed like a good time um in terms of the the merits of this merger as michael alluded to great companies talk to each other for a long period of time and i think that even though the actual mechanics of this deal probably happen quickly if you read through some of their public filings the the the getting to know you part has been going on for a long time and and

that happens irrespective of whether companies like zynga have a philosophy or a policy of not really being focused on on m a discussions in terms of being the acquiree and you know frank and team were always very clear about that that we were in a heads-down mode operating company turning it around getting it back to where it was you know in its previous high and that if things would happen obviously as a public uh you know the public company and as a public company ceo you're you have a fiduciary obligation in some cases to uh you know take on conversations or if conversations go to a certain extent you have to turn it over to your board um but as michael knows conversations happen up to that point of disclosure all the time between organizations when they're getting to know each other when they're exchanging high-level notes about what they think about the future of the industry and i think through those conversations i can tell you that you know i always had a personal professional admiration for take two as a company and i think it was shared by my fellow executives at zynga where we felt like you know that would be a great company to partner with in some way shape or

form in one day and they were on a small list of companies that we felt that way about um and so when i saw the news it was uh it was um perhaps surprising in the sense of how quickly it happened uh over the holidays and perhaps as michael alluded to maybe the the price but at the end of the day it was not a shock to me that that was the the end outcome um in terms of why take two may have done this if you look at again what i alluded to earlier about how public company ceos you know use their filter their filter is their product and their product is the stock price and so when if if i'm strauss and if i'm the leadership team at take two and i look at the questions that are presented to me at earnings calls and the questions that are presented at activision and ea and ubisoft about your diversification strategy how much you're investing in in larger platforms like mobile and i look at the sum the sum total of what i've invested in mobile relative to activision with the king acquisition and then ea finally coming off the sidelines and buying glue and then play democ

you know what ubisoft and take two were doing looked really anemic to the public markets right um and it didn't look very uh harmonious like it was individual studio acquisitions with no kind of central strategy around it and zynga not only catapulted take two beyond ea and activision but also created a beachhead in mobile with a scaled company with accomplished leadership and 12 plus years of experience and free to play and can harmonize their their acquisitions now under the zynga under the zynga you know kind of corporate umbrella and give them a real defensible diversified story that is of a larger scale than activision and ea uh and we'll probably give them more credit um as this notion of cross-platform that we all talk about in the industry becomes more and more of a reality uh and and the walls between you know mobile being now included in the conversation across platform with with 5g and streaming and and you know the fortnite effect as i like to call it with consumer expectation now rising around anytime anywhere any device gaming expectations

i think this was a great time and a great outcome for them um and again as as as sad and michael alluded to for all the success that frank and team have had in free-to-play mobile if you look at the totality of their history their history is actually more in running aaa studios and and projects and marketing so i think in the aggregate you have very few leadership teams that have as much experience in both camps um than you could see on the zynga bench and i think that's going to serve take two very well whether that means that frank maybe becomes the ceo of of take two at some point um perhaps uh or or perhaps not but um he's really proven himself um to be a great ceo of a public company in gaming um even though he didn't get that opportunity at ea he certainly capitalized on that at zynga and i think has a lot to to offer to the take-two uh ecosystem right and chris when you when you think about some of the the synergies or the additional value that's created by being part of take two

you mentioned cross platform do you do you think it's largely around the ability to do more cross-platform stuff and potentially the sharing of audience or how would you how would you describe what the potential additional value from being part of take two would look like for zingo yeah i think the most the most obvious one to me is the the ability to uh more broadly exploit and take advantage of the commercialization of take two's ip and i know i've heard in in different podcasts in a different um uh you know writings on online about is zynga the right organization and and i think you have to keep in mind that when an organization like zynga or any organization is faced with the opportunity to leverage this ip library that take two has and i you know it wouldn't surprise me if they started with some of their smaller ones and then work their way up to the larger ones but you can't look at zynga at this moment in time as to whether or not they have the right people i'm sure side of he was presented with the similar opportunity would go out and find the best damn talent that he could find to go after that

opportunity so when people look at our present company and say well we don't know if the studios are well suited like that problem can be solved by by finding that talent and bringing them into the collective but i think you also have to remember that there's tremendous talent at take two that has stewarded that ip to the point that it is which ip and story and narrative and character creation and that ip universe is actually a real key importance to doing any cross-platform extension and then what zynga knows with that that is in you know devoid or disconnected from any particular genre is how to build free to play games and run live services and do do marketing and community and that can apply to any game that's that's that's created and then the linkage is where you get the key talent that can actually bridge between the take two side and the zynga side to be part of that task force so to speak to build these successful games so i don't worry about whether zynga quote unquote has the right studios or talent today because they can certainly fix that as needed in the future as as sod would i'm sure um when presented with those

kinds of opportunities so i think those kind of commentaries are too rooted in a moment in time as opposed to thinking strategically through the lens of a ceo or a business unit lead in terms of how they would think about going after these opportunities so i think that's where the synergies are the other incremental one is obviously folding the three studios that you mentioned that take two previously acquired under the zinca leadership so that they could be part of that that portfolio and benefit from being part of an ecosystem so those to me are the two main ones got it and i thought we could now switch and talk about the current market in terms of supply and demand and i know on a previous podcast chris you had correctly predicted that we the market would be shifting towards more you know public company transactions bigger bigger types of deals we're here now and so acquisitions have gotten bigger but in terms of how you guys would characterize the m a market today and michael you mentioned you guys have done a bunch of deals over the past year assad you guys have also done a number of acquisitions and chris you were on

that incredible run at zynga are those kinds of deals still possible kind of looking you know at where we are today and in the future and again maybe we start with you assad yeah i mean like uh i was just gonna say joe i mean the reality is what the both of those transactions showed is everything's in play like there's there's nothing like not in play um the the chess board is definitely starting to get towards more of a consolidation end game scenario before you know we've been talking about consolidation for many many years i mean every year with about more consolidation more consolidation but the reality is it really is happening now when you start bringing the public companies into into the mix um and i think here in in europe there are two or three which are quite clearly um you know i say your but you know play teaker has announced it they've announced that they're looking at these kind of things um we know the others are out there too

and i think it comes down to what is the goal of these management teams and what is the goal of these you know of the shareholders of these companies too because it's not just the management teams as well it's it's as chris says you've you know if you're a management team of these public companies you have a fiduciary relationship to the company and essentially what you're trying to do is maximize the the returns of those shareholders so everything is in play i think when we look at the other layer down in terms of the universe of targets around the kind of size of the stuff that chris was doing those are fewer and far between those we know are not out there as as much as as they were the smaller space is definitely there there's a lot of studios where you can you know you know between one to four million dollars in ebitda those those exist but then it comes about you know is that going to move the needle for some of these bigger organizations like even for us so you have to figure out a strategy around that

but i i certainly think that kind of what would be considered the kind of top middle but like the tier 2 tier 1 kind of opportunities of just pure privately owned maybe vc backed there's a handful of those the the that's that's the reality that we're facing so if you want to do something at scale that transforms your business overnight you are looking at some of the more established players and then it comes about you know it i like it to one of our games agario right you're you're you're one of the kind of mid-level um you know spears and it's who can who can kind of capture the other one and where does it make sense to capture i think to chris's point we're all talking to one another i don't think there's a i don't think that's at all uh a secret if it is a secret then okay we've broken that barrier down i think i met chris first time when he was at caban so you know that's that's it's we're always talking to one another um and and i think to chris's point

there's a lot of things that might on the outside not make sense but you don't know how long some of these conversations have been going on for and actually i think the time now where people are going oh it might make sense for us to kind of partner up and i certainly think if you are a privately owned business you know some five billion dollars at this moment in time you're in play and i think that's that's just the reality of it um and there's a few of those so you can figure it out maybe i've said too much because this is about public market stuff so i've got to be careful yeah i totally agree with assad and and also to put a little bit of perspective so we we kind of look at what happened on the deal side over the last years and 2020 we saw about 30 billion dollars worth of deals 2021 uh was like an 85 so massive increase and and for this year we're predicting 150 so continuous rapid consolidation and

probably if you're looking back like in 2021 uh january might have been the peak of the whole consolidation with both zynga and the activision deal happening within the same month and kind of pretty much creating as much steel value as all of last year together within a single month um see a massive amount of activity across the board so there's a bunch of different factors a lot of the public companies dropped a lot um like in average gaming stocks maybe dropped 50 percent some more some less and um you know what's happening maybe companies like playing tica where some shareholders you know wish they got closer to the price where they ipo'd a while ago and getting to an exit where you know once they announced it was already a bump and if there's a deal typically

there's additional premium that's allowing large investors to get back and get to a price much much faster versus building it over many many years at the same time a lot of those public companies we're talking to they're also you know under a lot of pressure to grow ideas idfa has been a major issue as chris mentioned on the mobile side um and you know they're trying to justify the wall street how can they improve their price and how to grow how to diversify and that's you know the easiest way is for them to acquire or merge with other companies so we see a lot of that happening being sold a medium premium and and also what's what i thought found interesting over the last year kind of also the consolidation of the pc console space which to some extent was driven by bracer kind of starting it at the high volume and you know like several years ago there were tons of highly profitable um

founder-owned companies out there and nobody was really interested in acquiring them and embrace it as something since started that rolling them up with a very unique structure and um you know that got other people to to buy into it and become very aggressive on a m a side on the pc console side as well so so some of the observations right and michael when you think about the distribution of deals i mean certainly i think the overall volume of the market has increased especially as we move to bigger transactions but if you were to speculate in terms of any trends that you're seeing or in terms of the future market in terms of the whether it's the overall number of deals or whether the distribution shifts to you know where where we have fewer sort of mid-tier size deals any thoughts on that or anything that you're seeing in the data so c is still a tremendous amount of activity and kind of mid-sized deals i would say below 100 million um there's a lot of

talk about some of the large public companies what's gonna happen to them and that's purely speculative like similar to the size of platika so i think it's going to be you know if you look at the dollar value kind of one activation makes up a lot of smaller deals same with zynga but i think i continue to see it balance both a bunch of public deals and but also a lot of a lot of private deals if you look at the overall deal value last year we also had a lot of ipos and spec deals and with a public market um in the sector dropping so much the you know the ipo market more or less dried up and spec deals most of them have not performed well um discord is the one that's rumored to to try to make an ipo happen uh kind of that's one of the on the shortlist potentially to go public others also having discussions but definitely expect less kind of ipo spec deals this year than last year

and um [Music] yeah but but m a continue to be very healthy okay chris yeah i think the interesting thing here for me is to um on the public to public side i think there's just kind of a collective wait and see uh to see if the the activision microsoft deal will pass regulatory scrutiny because i think the last thing that other public companies want to do is go through similar exercises and then be in a queue of unknowns right they've spent all that capital and cycle and break up fees and opportunity costs to line something up without certainty as to whether uh whether these things will be passed i think the other question is whether if micros if the microsoft deal passes whether that creates a higher bar for future similarly sized deals because then you know the consolidation will be that much more evident so this will be a real watershed moment to me uh in terms of whether or not this deal gets approval and what that knock-on effect will have

on the industry um you know i think uh to what son and michael were saying about you know deals on the smaller scale or lower end you know it really goes back to what saad says which is whether acquirers see any any uh appreciable value coming out of those things because in light of idfa i don't know that there are a lot of acquirers that are necessarily having at the top of their thesis that we need more capacity or we need more titles um because that associates you know a risk with it because as we know every day that passes in our industry it's harder to launch and scale new games um so i think many of us as an industry as industry appears are thinking about the mantra fewer bigger better um which is interesting because that was the mantra that we had at zynga and then you know the the risk of that is that if you're fewer bigger better don't deliver then you are penalized tomorrow for what you were given credit for yesterday and what i mean by that is like for a long time when we were doing the m a

that was kind of the the the darling storyline of wall street and they loved that because we were deploying capital in an accretive way that was bringing you know terminal value to the company more so than the cash sitting on the books but then the narrative shifted which is well why can't you also launch new games uh even though we had called our new game pipeline quite appreciably from the time that frank joined to the time that i left so there's kind of a double-edged sword there right that you're working with and the industry and public markets can be very fickle and determining which of those levers they want to pull when they're criticizing you or praising you and you can never really know ahead of time what that is um so i don't think you know i think the lower end stuff is going to uh sorry lower scale stuff is going to come out naturally because the subscale companies are feeling the idfa pressure right they've already had limited budgets they're not getting more funding to spend marketing dollars less efficiently and they're probably going to be looking for homes where they can you know be part of a larger uh uh um ecosystem but i don't know that those

ecosystems are looking uh as aggressively like i i would be a betting person and saying that sod's cadence of m a within the same time frame may not be the same tomorrow as it was yesterday uh it's also not surprising jk i was reflecting on when we first had our our conversation last year about uh with you me and cress about uh talking about our feelings about embracer and still front and you fast forward one year and you see what their stock has done right and that quantity over quality uh approach has has borne out as we predicted it would with you which was not not going to be positive and so um there aren't really many vectors left um for growth other than the few that exist that are scaled private companies and i think we can probably count them on two hands and of the ones that are actionable you could probably remove half of those fingers so it's it's it's really not um you know not a fertile ground for uh for the consolidators that are at the top but the things that i get excited about are talking about what happens to epic uh what happens to steam um does nintendo uh change its stripes

and really start getting aggressive like where does ubisoft fall out as it continues to lag behind its aaa competitors these are the kind of moves that i'm sure in these board rooms if we were flies on the wall and michael may be in some of those already that that you know are really interesting discussions to be had and for us to do our own kind of wargaming and chessboarding around what we think is happening in those companies um steam has not been talked about for a very very long time as a company that is of interest i know many of us in the industry feel like there should be interesting things around them i know gabe has historically not wanted to entertain these things but given the path that microsoft is going about being the virtuous app store and the content fortress or walled guard whatever you want to call them um and wanting to re recapture some of its cross-platform um glory you know and plus with steam being based in in washington near microsoft that marriage to me makes more sense than ever if it's not them then it's epic and steam um you know where does unity play in all this app loving has been unusually quiet from a cadence perspective and i think

it goes to what i said earlier about the uncertainty around what it what payback it's going to get for its studio acquisitions even with its own privileged position of having so much access to data so i think there's a collective pause happening right now for a number of different reasons we just talked about but none the least of which is to see this regulatory outcome for the microsoft deal and that will then help help create more clarity for the ecosystem around what can and can't be done around mna great yeah that's um very interesting topics uh maybe we could actually even dig into that a little a little deeper in terms of some of those some of those fingers and so like if you guys were to think about some of the targets that you guys think are potentially the most attractive out there i know before um a number of names have come up but if you guys were to think about some of the more attractive names and what you think might potentially happen um what do you what do you guys think and maybe michael we could start with you and and feel

free to share whatever confidential information that you're seeing michael yeah i mean um on the public just repeating some rumors what i heard i mean on the public market side ea obviously following the activision deal as a lot of people wrote about what's gonna happen with them and um they were very late to the m a space and um um happy they went forward with a glue and play demo deal following codemasters so just to get some additional scales but you know that's one of the obviously potential large target and chris mentioned ubisoft that's an obvious one in in europe out of out of the public ones okay sod who do you think who are you looking at if you if you guys could acquire somebody i've gotta be very careful i'm going to be very very careful um you know there's two ways i can play it which is to name everybody so that nobody would have a clue about me before

or just stay quiet i mean i think i think look the reality is for some uh a company like miniclip we are a developer publisher first right we are not a kind of this is going to sound super disparaging but it's not meant to be it's not going to be a pejorative at all we're not like a kind of holding company that is then acquiring studios and trying to consolidate as one like we we happened to be a company that had a lot of success ourselves and then saw an opportunity to acquire and and add to that right so when when we think about consolidation and we think about other stages we think about where is it that we are weaker in terms of the categories perspective or where can we consolidate more more strengths of the things that we currently have um you know a good foothold in and i think when i look at it there's some obvious categories that we aren't super strong in um and so i think about companies like you know tactile entertainment and what has been the guys

there are doing is is phenomenal we everyone's nodding everyone knows that they're doing a good job there and i haven't spoken to him so i don't think i'm in recently i should say so i don't think i'm i'm hurting anybody there i mentioned this last time but first touch what charlie and the guys are doing in in that in that arena i think this those are two companies in particular that i think are are very good and you know would any acquirer would be interested in in terms of the kind of biggest stuff i really really couldn't comment but i could say that we're talking to everybody we're having conversations with with a lot of people and i think what i find interesting actually and i've said this to our own team for a while we've been in the mix for a lot of for a lot of deals in the past and we've just been very disciplined and where we thought it wasn't you know we felt like things were a bit overpriced or just beyond what we wanted to do and we took a very disciplined approach we were always kind of there but now that those market the public markets have cooled off a little bit and and the fire power isn't necessarily as

as as it once was for some of them you know we the door has opened for us because we can't keep keep kept that kind of discipline there and there are a lot of opportunities for us to kind of look at companies which you know would have been a much more competitive process with some of the other acquirers out there so i think you will see i think to chris's point you'll see us look at some big deals we'll be in the mix for those big deals and we'll hopefully be able to to close some of them um but i think they're going to be fewer and further between than than what it was in the past and that that said i say few and far between i think that's just because the meaningfulness of some of these deals are going to be more transformative to our own business um and with that comes a lot of you know content and other studios that might make sense for us to try and figure out what to do with them but um

on the flip side of that actually it's gonna sound very it's gonna sound hypocritical of what i've just said the flip side of that i do see a pathway in the next six seven months where we make a few big moves and we do it quite quickly because i think if we're going to do it it's going to be consolidated very fast or we're going to move very quickly and i think there's like maybe a few a few deals that we'll do that will will suddenly change the way in which we're viewed in the market i think at this point a lot of people are looking for relevance and i think the way to be relevant at the in the market this moment in time to what chris has said before and i think what we're seeing in the in the business at the moment is launching new games is more difficult than it ever has been so working with companies who have got established franchise and established ip and and and collect you know kind of the collective kind of umbrella of that and and adding the synergies around that makes a lot of sense so i think we're going to see a lot of that so can i name more names i probably

can't i've signed a lot of ndas joe that's like yeah chris what about you can you can you speak to some of your fingers man uh you know i think it really comes down to you know if you're looking at it through the lens of what's possible then the chess board can be really big and if you're looking at it through the lens of what's likely or actionable right um that becomes a a really narrowing filter because obviously there's a lot of factors that go into determining actionability whether a company is at a stage where it wants to entertain um these discussions given where it is in the life cycle whether it's already a controlled company whether it's public versus private whether it's where it's based geographically um how much appeal that company has let's take a great example i think we all can say that one of the most admired companies of our you know recent uh phase of mobile is playwrx and you know and having said that you would think that playwrx on paper would be a very actionable company either from an acquisition perspective on either side of the equation or to go

public but then you look at the details of how the company is constructed and many western companies are just afraid to take that on um you know you have a concentration of wealth and equity hold sitting in two people's hands and a distributed network of studios that are in a you know in a part of the world that has historically been uh you know challenging to operate if you're not from there um and and so that context here is everything right and i mentioned some of the companies before about valve and epic and steam and unity and iron source and apple oven and there's so much actionability that's possible that is is in theory possible but when these conversations that sod refers to actually happen in the background either directly or and or through liaisons like michael uh you know things get filtered out um you know quite quite quickly so uh you know the the chess board to me is is as big as our imagination but also as narrow as our as our as our practical limitations are and so i think if i had to make one prediction i know you didn't ask but maybe i'll force the force this panel to to make a

prediction in terms of the next a company that would be part of the next deal i think the one that makes the most sense obviously is platika um they've signaled strategic you know strategic uh review um that i'm sure they're ginning up a process and they will probably go like like uh like zynga did very quickly um and and because there's already a blueprint in place for multiples and and and precedent transaction and things that nature for a very similar company um that seems to be the one that will that will happen and then from there you know depending on the regulatory landscape um you know somebody like ubisoft or square enix or some of those you know below the top three um you know maybe interesting to sony and microsoft i think the bungie deal with to me was not a reaction at all to the activision deal i think that thing was going for a while as we know how long japanese processes take but it was interesting to me that it ended up in sony's hands given the relationship historical relationship that microsoft had so i think sony has to step up and make some bigger moves if it wants to compete on

subscriptions and and you know proprietary content um and then the wild card for me is always nintendo you know do they finally buy niantic do they finally do something out of their comfort zone um or do they just stick to their knitting you know they're always a conundrum to me uh every year and what you think they're gonna do and then they do something completely opposite so well chris to challenge the panel i mean i just just challenge you on this is like well but the bigger question is who do plateau go to who are the acquired players that's the bigger question for me yeah i i would say i'll defer to michael on this one to be more pragmatic about it i would just i'll just throw something somewhat nonsensical out there was if you can merge platika uh with sciplay um and you know you merge businesses that are not averse to that category i know that the market may may not give them credit but if they were able to further diversify their portfolios especially sciplay i've been a little bit surprised and i would say even disappointed at their lack of ability to

execute diversification because i think that would have served them well like it did play tica but depending on how platika you know they define their casual or non-casino business quite liberally because it includes things like bingo and other things that are kind of straddle both ways but i think they say that they're a pretty balanced company like 50 50 60 40 something like that but somebody like sciplay that needs more scale that knows that market very well and could could easily leverage a more scaled public company presence to to more easily diversify and buy those those independent opportunities kind of below the line that we've been talking about that seems like an interesting um you know public to public deal that won't get a lot of scrutiny because there's not a lot of competition um that is gonna you know reject this deal because social casino is a really tough business to be in but if you're doing it well at scale it can be very profitable so i that one to me seems like uh an interesting one that may not make sense culturally but may make sense on paper that's a good answer

on the platika side it's it's not that trivial because you know the market cap is like 8 billion-ish or something so they're not small and not a lot of players would be able to do it so the the the um and the chinese one traditionally shy away from social casinos so you know they are kind of out of the picture who could easily do something and it could be a potential merger with some others or it could be um applovin apple evan's another one by the way i totally forgot to throw that on right it could be also a private equity deal where a large private equity firm essentially takes them private because platika has been you know highly profitable very successful in the segment they have been private uh for many years after the the caesar interactive kind of sale to to to giant which never closed um so i think looking at the uh universe like uh carla kkr or maybe

uh uh um some of the e firms team up to make that deal happen i can see that as well yeah enough of those pe firms actually have investments or portfolio companies in gaming already that they would just you know marshal that asset right to be the the trojan horse to help them with that yeah yeah and it seemed it seems like playtika just based upon the impact of idfa deprecation to its business um i i agree with you chris like a company like applovin that may have uh enough data to be able to help offset some of that stuff might be a an interesting way to potentially address some of that stuff yeah look iron source as well iron source and platika share a lot of uh real estate right in terms of geography so you know from a culture fit perspective there's a lot of there's a lot of overlap there already much more so than with applovin right um cool and maybe like the one other topic it'd be great to hear your thoughts about is that is we've seen um kind of

like acquisitions um you know and whether you think there's going to be more or less we we have seen recently a few carve outs so scopely's acquisition of gsn games from sony pictures uh tencent recently acquired inflexion flexion from improbable and can you guys speak to this kind of opportunity do you think we see more of this in chris you also mentioned uh king inside you guys mentioned king is is that a possibility of getting carved out like what do you guys think of this general type of play and what are some of the potential opportunities if you if you think there are any in this area yeah i mean i think there's again it's like like i said before everything's in play um you know all conversations i think will be had but chris made a really good point about actionability right so it's more around you know what is what is the overall vision and motivation of these companies doing what they're doing right like you know with

with king i i think it and i don't know there's no i i don't want to put any speculation around any of this right but well you know we king it just doesn't seem to to fit with the overall narrative of the microsoft activision deal right so then you kind of think if somebody came and approached with the right price and if if you could make the case of the management team of king and they were supportive of it then i think you know microsoft if that deal closes would listen or actually whoever the stakeholders are around that room would listen to that kind of um the potential of a deal around that but i think what we really need to understand is is what is the vision what is the strategy and what is it these companies are going after and what are these management teams trying to achieve i think you know with microsoft we talked about that earlier we kind of have an idea around what that is with you know with with the brothers at you know play ricks we kind of have an idea of what they're kind of trying to do but they're not really trying to you know globally

dominate um they kind of having fun is a disparaging again a view they're doing a great job of what they're doing but we know what they're kind of trying to do and so it really comes down to where there's a carve out opportunity and where there is an asset that makes sense for someone else versus it's sitting with the current kind of owner that's where it comes when it comes down to and i think you know we've talked about app clubbing we've talked about creatica i think it's very interest i haven't really done this work but michael it would be interesting to see what playtique would be as a social casino business versus their casual games business and how what would happen if you actually separated that and would there be you know would that be more valuable as a separate business versus you know what it is today as chris says there are sensitivities around the social casino part of that business versus you know some of the other great assets i mean what they've done with wooga for instance and the super treat guys phenomenal job is that something that could be more valuable outside of you know

the current rapper of playtika versus you know a deal um on their own and i think if i was looking at that there is a possibility of that and i think there's other there's other assets as well that some of the other public companies have i mean you could see it happening if there was a certain acquirer of ea would glue and the plaidemic deal make sense um to that acquirer um somebody that you know another company we don't talk about you know chris mentioned some of the japanese players but you know nexon uh are out there too you know there's there's plenty of um plenty of assets that they have which could be interesting uh as well for for that similarly net marble right and you know jam city what do they want to do with that kind of thing so yes is the answer there are those potentials but it really does come down to the actionability and what is it that these these teams and these these companies really want and what are they trying to achieve and do those assets

make sense in the hands of somebody else and you know when you actually look at that it's probably very few opportunities there in terms of being able to carve those out easily michael can you speak to that are are there any specific deals that that you're seeing and uh what would be some of the from a you know mechanical perspective or from an execution perspective are there additional difficulties with carve outs relative to you know typical type of m a transaction yeah i mean generally two trends one one trend in general is more diversification which says don't spin out different entities being more diverse which which you see we take two and zinc and a lot of other deals on the other hand be more focused too and one deal was pretty interesting is the esl sale the pif um by mtg and they pretty much had the esports business and the gaming business and the gaming business has been doing great

highly profitable the esports business never reached profitability and it also had some challenges to encode it and that's one example where i would say it worked out really well and i'm not sure if you follow it i mean the acquisition price was very attractive with together with faith i think at 1.5 billion and the mtg shareholders thought it was a phenomenal deal not sure if you saw the day the deal was announced the mtg stock jumped 50 percent because the shareholder thought okay it's great we don't have this um we don't need to fund the esports business anymore and getting such a large amount of money for it was phenomenal so that's probably one of the ones that just happened very recently and um saath's idea of kind of looking at platika's two different pieces the casual game spaces and social casino business i think is is a great idea because it it also expands the universe a lot some of the chinese one would probably be very

interested in a casual games business that might be an opportunity to merge with some of the other social casino businesses chris alluded to so i think that could be a great strategy okay chris yeah i think i think on the carve out topic you know again context being everything um you know carvats usually happen when a company is not doing well or it's changed strategic direction right it's never gonna you're never gonna see carve outs happening at a time when things are going well across the board um and so having to know that context helps try and pinpoint per perhaps potential uh uh areas of opportunity where that would happen i think the one that comes to mind because they've already had a history of of doing one transaction is at t um with their gaming assets right so you know playdemk was the smaller of the two um but they have the warner brothers games division that you know has long been speculated about what what's going to happen there as a t is a very monstrous company you know warner brothers games looks to atm t

like king looks to microsoft right in broad strokes um but the premium that they could get could help pay down at least some incremental part of their debt i don't know my golf really makes a dent in their overall debt uh uh load but at least optically it shows their shareholders that they're shedding non-core assets um the only other thing i can come up with is if our friends here in europe that have historically been buyers are now going to be sellers as they're being pressured to focus as as assad and michael alluded to right so our still front and embracer looking at offloading assets that they acquired because they're realizing that they're not getting the benefit of their of their strategy or their tactics associated with with with m a um beyond that you know i think we all know that the gsm games was in play in various derivations for quite a long time and went through multiple bankers um so that's been a multi-year process um i think scopely just probably saw a great opportunity to bring more profitability to its books than it had historically

especially pre um you know pre the marvel strike force deal um so that could have been a bit of financial engineering as well uh to help them prop themselves up um relative to where they were on a standalone basis um the improbable stuff i mean you you know tech carve-outs are you know much easier to do because tech companies are always kind of evolving themselves and shifting um their their their focus on what they're investing in and so something that's a tools-based solution um could easily be acquired although by the same token i know that rovio has tried for many many years and failed uh to sell their their kind of game streaming business um you know which you would think had some kind of resonance with somebody at a tech or tools level um but you know alas nothing has happened there so to me i don't really as i look at the landscape i don't look at a lot of companies that are in a strategic bind or are shifting focus away from this category other than the few that i mentioned um so it's just more of a moment in time thing as to what you know whether carve outs happen or not it's

not doesn't seem to be like a systemic um strategy it seems to be more of like an opportunistic tactic got it and maybe just to wrap up this conversation thanks so much for your time guys um maybe we could kind of continue down the thread that chris started us off with which is predictions if you can make one prediction in terms of you know to the extent that you can with uh given ndas and confidentiality but if you could speak to one prediction maybe starting with you sod to end this conversation what do you think will happen and maybe i can start i'll i'll i'll do a i'll do a non-non-posting content that's amazing so i i would my prediction is that unity will acquire a photon because they need a good netcode solution but go ahead saad well that's a good one yeah they probably should do that um would be very helpful if they did actually um yeah okay okay i would don't kill me for this but

i can't be too specific so what i would say is i i certainly believe that there will definitely be some public companies going private in the next 12 months but that's gonna happen um here in europe i think i think i think okay i'm to put a number to it so it's not just what i want one obviously one's going to happen right so i will i think three at least three of them will go private in the next 12 months so put a hard number on that and as as chris says there's a handful so there's not many there's no you could kind of figure that out michael yeah i mean we talked a lot about m a and some of the challenges the public market companies have but one thing we haven't talked about and that's where the prediction is going to be is kind of funding into private companies and what we see is a tremendous amount of money flowing into dedicated gaming funds um

i think galaxy announced the big one i think there's more to come bitcraft there's several uh a large funds and reason it's has a big gaming fund about to do another one hero just announced one and about another five to ten funds i heard of they're raising money so there's a lot of money flowing into the space so one of the prediction is that funding into private companies in 2022 will even exceed 2021 and just like in q4 last year we saw 200 rounds 200 financings into private companies and that's super exciting to me because allah's money is kind of funding the creation of the next unicorns the next highly successful companies who might figure out the idfa challenge you might come up with amazing cross-platform games um that eventually will lead into m a and two or three years later so that's kind of uh

my prediction don't you have to have web three on the deck i was just gonna say i'm so big i'm so proud of this group for going over an hour and not going down that rabbit hole so i it's probably the only games podcast that has done this recently and chris do you have any other final prediction to close this out i mean yeah so the the we we talked about the platika one that that seems like a no-brainer to to predict so moving on beyond that um if i look at uh you know just putting one lens on which is scaled private companies and i'll exclude my own um you know the interesting ones that are out there um there's moon active um there's scopely there's wildlife and there's uh dream games so you know the reason why

i exclude mine other than for obvious you know confidential reasons you know we're much earlier in our life cycle haven't yet taken outside funding where a lot of these other companies are more mature and have taken a tremendous amount of funding um and that usually you know when you get that many people involved in your cap table um the more voices you have you know at the table asking for uh outcomes to happen um you know obviously you you hope that you have long viewed investors in there but you never know um and again these are scaled players that can bring a lot to the table in this age of consolidation but are probably small enough that will more easily withstand the kind of scrutiny um that microsoft's going to go after because it's nowhere near that size but but it really brings a lot of heft and scale so those are my outside of platika those are my four dark horses uh i think maybe the other really crazy one would be if google acquired iron source um to kind of shore up uh more of its ad business you know in

in response in part to what microsoft did over the holidays and buying a dsp um that wasn't really talked about quite a lot to be honest but um you know i think those kinds of company maybe apple gets into that mix as well um you know on the mobile ad network side um yeah that's those are kind of the extent of my my crystal ball prognostications all right great well gentlemen thank you so much for your time i definitely learned a lot and for our audience we will catch you next time thanks everybody [Music] you