Games Industry M&A Outlook: Who's Getting Acquired Next?

you welcome everybody we're here today to talk about the current state of ma otherwise known as mergers and acquisitions in the games industry there's been a lot of recent activity and there seems to be an open question now about whether this current trend can continue as Zynga seems to indicate or whether we're likely to see a major slowdown so during the conversation today we're gonna be talking about five things one what has driven the spate of M&A activity in the games industry - why has Inga historically sort of sucked M&A but more recently they've actually been doing an amazing job three who are the buyers in the market for who are the acquisition targets including speculation about Warner Brothers and finally predictions on MA in terms of short term and longer term trends and with us today to speak about all of these issues and more our first sod

Chaudhary chief commercial officer at Maine clip second Jeff Cohen research analyst at Stephens and third Michael Metzker partner at investment banking firm Drake Star partners welcome guys and maybe what we could do is just very quickly get a brief context into your backgrounds and what you guys do and then we can dive right in maybe starting with you son yeah sure I'm I'm sorry I work at Miniclip I've been with nip now for nine years started my career as a lawyer at Sega moved over to Miniclip and started working on multiple things within the kind of companies moving from web to mobile and about three or four years ago post our acquisition from $0.10 a mini-cooper sold to $0.10 and we started doing a mini $0.10 or mini cent

is like what I like to call us and start to try and acquire companies so we've tried to do that the last three or four years and that's kind of my primary focus of the minute I'll keep it at that it's just things going forward yeah yeah first JK I mean obviously thanks for having me this is gonna be fun I'm an equity search analyst at Stephens Inc we are independent investment bank here in the States I cover the consumer internet space here but primarily focus on gaming mobile gaming and eSports I'm Michael Metzker my partner Drake's are partners we're a global media and technology and that's been dating for about a hundred professionals across the US Europe and Asia and we advise companies on M&A both buy-side and sell-side and also advise companies from later stage growth stage financing fin has been super active in in the gaming in the digital media space great so

maybe we could go ahead and just dive right in starting with the first question which is really around the recent activity in M&A in the games industry so we've got you know the Zynga acquisition of peach we had still front acquisition of storm a fox next MZ by app Levin we had a bunch of smaller ones like Plex onic by clerics and the big news now is all around speculation about Warner Brothers being sold potentially to Microsoft or whoever but could you guys talk to me about you know what what has driven all the recent activity in M&A why is this happening all of a sudden I know you guys think but to be honest these these deals take time so it could be a combination of things are just now getting announced but there's been a lot of activity in the market for quite some time well and I think the obvious reason is you know many of the publicly traded

companies are doing very well at the moment they're trading at very high multiples and if you can acquire companies you know a deal which is which is lower than that then it just is all accreted to you equally we're reaching a kind of a maturation state within the mobile industry where we are starting to see some leaders we are starting to see these as england' likes to call it forever franchises which don't seem like they're going away anytime soon and what you want to try and do is you want to try and pick up as many assets as possible so that you don't get quote-unquote left behind right there was a consolidation in the console space many years ago that still might happen again with all the kind of streaming tech that's happening on that side of the business equally that's that's happening in in the mobile side I mean we how many times do we see reports around the top 100 gross name being the same games and it's

very hard to penetrate you might get one or two new titles in there so if you are trying to grow your business organically and in organically then I think the simplest way of growing at a you know with a real step change is to acquire a business or acquire a different company so that's why I think it's all been fueled because we kind of know how to value these things and we kind of know who's gonna stick around for the next 3 4 5 10 years even some of these titles so I think that's why people are more confident in trying to you know make these acquisitions I think another bit as well that people don't often realize as many of these businesses which were bencher backs there's a you know some of those funds have to mature and some of those investors want to have a liquidity event or an exit event and that is also fueling you know founders or management teams to try and look for other strategic partners outside of the you

know kind of traditional space and then obviously we know that there's certain companies who have got their own IPO aspirations as well and as you do that you want to build up your your your business so that you can you know present yourself to the market in a much more solid footing so I think that's that's what we're seeing and it's a combination of all those things which are which is driving all this I think it's an exciting time for sure I don't know what you guys think it's aside if I could kind of summarize kind of the key things that you're talking about one is you're seeing like this sort of valuation arbitrage between public and private gaming companies to trying to these companies trying to get to scale and so trying to consolidate three the you're saying that there's probably less risk associated with some of these games as we're seeing that these games have life lifetimes for example in in terms of Jeff and Michael do you guys agree with some of those key drivers or yeah definitely agree and just a need for scale I mean some companies believe it's

gonna be you know maybe a handful of to a handful of companies that really gonna dominate the mobile space in several years out and it's to some extent it would be or or get Eden so that's one driver getting you know getting as large as possible to scale while taking advantage of kind of the evaluation arbitrage as you mentioned that's a key thing another thing that was interesting over the last year or two as Assad mentioned the PC console kind of consolidation several years ago that really has started again like two years ago between a half years ago there were very little PC console deals but that really had started with both the platform guys and Microsoft Sony being much more acquisitive and in companies like imp racer who really were tiny three years ago executing a very successful I mean a strategy and throwing significantly and continue to do that so it's consolidation not only on the mobile side but also on the PC console side right yeah I agree I agree

with with all those points I do think we also have to separate like what you guys have been console from from mobile you don't on the console side I think there hasn't been a lot in recent years because there's just not that much out there by it is very clear that these are businesses that have economies of scale and every management every public management team you talk to will say you know they're looking at acquisitions but frankly a lot of the consolidation has already happened and maybe you know the next wave will be like an EA buying will take two or you know a cloud company like a Google or Microsoft buying Activision or even Disney by Mac division but it's not clear that there's so many you know at scale assets out there on the console side that are easy to scoop up you know we're gonna talk about a couple of them today that's the Warner Brothers maybe a smaller studio like bungee or gearbox but there's not that much out there on the mobile side I think the reason we haven't seen that many acquisitions until fairly recently is

industries really been in hyper growth for a while and you typically don't see consolidation markets where there's that much white space and kind of room for small companies to grow and like you guys said what's happening laughs you years is barriers to scale mainly cost per install are rising so dramatically that these smaller studios aren't able to keep up and then that's into the consolidation and kind of the big getting bigger right and actually thought I forgot to mention the last point you made which was around investors that invest in some of these game companies that aren't wanting to see exits how much pressure do these companies have to sell if you know even if they don't want to or not you know not to be disparaging to that part of the industry they're actually usually very good actually like the game soakers the and the people in this phase they usually don't put a lot of pressure on founders but there is obviously gonna be some pressure and actually you know - if

you think about the value that somebody adds by being a shareholder or involved in your business it comes a point where that investor cannot add much more value you know they're taken that company so far and actually a lot of the times now the founders are saying we would welcome being part of a bigger organization we would welcome having some sort of economies of scale with whether that be on the marketing side would that be on on technology or whatever it it is that drives you and that's one of the key reasons why we joined the ten cent family because we just felt like we needed to have a strategic partner to take us on to that next level and I think that's where we're seeing with I almost treat it like a peloton to use a cycling thing I'm not a big cyclist but I'm gonna use it anyway thing but I see it a peloton and there's a leading pack and there's a there's a big cluster of of companies who I think you know which minute of his part and companies like

Stokely Jam city and the others we're all there and if you don't keep up with that peloton you're gonna get left behind and you need to kind of keep up with a chasing pack and you know to do that I think one of the most secure ways of doing is through in organic growth which is to acquire companies and and that's what I think we're seeing because yes we have been in a hyper growth base in as an absolutely correct point but now as we start to see smartphone penetration you know you stabilize and most people are on their second or third device you know that kind of natural market growth isn't there in the - we would call them tier 1 countries right in the emerging markets it still can be there and you can still do very well there but ultimately if you really want to generate more revenue and consistently generate more revenue than then then you have to go and acquire right so I know I've gone on a tangent from your question but ultimately I don't think there's a lot of pressure but I think

there's pressure for investors to add value or for shareholders to add value to founders and I think that's better done now with companies which are operating that scale hence what you know what's driving these these deals as well from a founders and then just looking at a specific company so Zynga it historically it seemed like Zynga was not very successful at M&A but more recently they're kind of being held up as you know the company that's doing the best at M&A and certainly there's been a string of acquisitions more recently that have been viewed as really great successes and so I was wondering if you guys could talk about what do you think it is what what what is the difference between their activities before - now if you can speculate in terms of what the difference is between how do you execute M&A successfully versus not successfully as they previously were not able to do I mean from my perspective to strategy change quite a bit from the early days to now I

mean the focus has been on how they call that it's very ver French life it's which really are much later stage companies with being able to achieve a hundred million or more in revenue with a single title so the risk associated with that naturally it's much lower compared to what they've done before second thing is is maybe you know the management change I think combination of a frank burn up came and and and Chris Petrovic has done a great job and probably much better than the previous management team and that's also attract the right talent to make sure they're staying happy and are happy once they're part of Zynga that's you know the key piece to watch out to ask the requisition how do we integrate them and how do you treat them but having said that they have not been obvious bad I mean they you know worked with friends was one of the acquisition that's still doing very well natural motion probably was more or less

of a desperation they were didn't have any traction in mobile and see if our gaming seem to be doing well and they you know bought into the story that there's much more games outs besides CSR which really didn't turn out that way but that was kind of more desperate move I think at the time yeah I think I would echo a lot of what Michael just said I mean the gaming business is a pretty small world and it's really a people business historically I don't get the sense that people wanted to get bought by Zynga you know like you mentioned they had a pretty mixed track record and weren't really considered kind of the best place in the games industry to work that's definitely changed and it's a testament to the leadership that Michael called out they do have a good playbook now and it seems like people actually actively want to get bought by them you know these firms that they're buying get to keep their culture they take equity they get to enjoy the upside and kind of stay an autonomous piece of the Zynga

sort of infrastructure you know kind of plugging in when they need things like sort of Jigga's you you ask for tees but it's not like Frank is going in there with an army and changing the colors to red and you know saying you're no longer Graham games you're Zynga so I think that's actually important and it's interesting to note you know from I understand they were not the highest bidder for peak but the peak founder chose to go with them because he wanted to have Zynga equity and he wanted to be part of that you know Zynga sort of family so I do think those are those are important things to note right now one of the things that people talk about in terms of me in terms of speculating why the acquisitions are more successful is that in addition to the management team as you mentioned Michael is that there's seems to have been a shift from like if you think a high-level in terms of the the model in terms of publishing from a centralized model it's more of a decentralized model where now you know whether they you know acquisition of small giant most of the functions are pretty separate it's almost like the

supercell model of different cells do you guys have any thoughts in terms of whether how much the the model in terms of central versus decentralization has also impacted the success of some of these acquisitions well I mean the success of those our positions are are exactly that but they brought mature businesses right they brought businesses which already had all of those functions already had an ability to do those things at a very high level right these these games were already in the top grossing charts you know ran by very good management teams the guys at Grandma great small giant a gray peak is great as well so it's kind of like when you're making these acquisitions I think the point was made before that these this is a people business by Jeff and the reality is why are you gonna try and break anything but these guys are have built right you want anything you want to try and support them as best as possible and bringing in your playbook to try and affect their culture it's not

always the best way it's how we tend to do things as well when we when we acquire Studios but I think it really depends on the maturity of the business that you've acquired some companies that we will acquire for instance may not even have a marketing team maybe even had have any idea about how to do business intelligence and have any data scientists in in the space so in that situation they're looking to you to guide them to either build back internally or to provide that service where I think Zynga has had great luck and success and maybe even by design is to acquire those businesses which have already proven that they can do all of those functions and so the idea of a centralized model versus a decentralized model I think if any major acquiring our always prefer a decentralized model because it means that you can let these companies get on with it and give them growth targets but a centralized model can also

work depending on again where in the lifecycle that studio is and what they might mean so I think it's and the other thing is it may be may be its apartment maybe it's maybe it's a function of Zynga buying things in Europe right so you always have to have a decentralized you know kind of operating model because you you you're an ocean apart it could be something around that but also you know I think Michael called out you know Bernard is you know just one of the top people in our industry who's a great guy that everybody likes Frank has obviously come from from with great reputation from EA and I've known Chris Petrovic since to Caban day so it's it's it's very much a people's person they've got it right with the right people and I think they've got it right in terms of the target strategy that they deployed so I think I think you're you can't ultimately say whether it's centralized

model more decentralized model works best but what I can say is Tencent works on a decentralized model as well and they've had a lot success so maybe there's something to it right so maybe it is that is probably the best way to go go forward I mean I know what you guys think I mean in general definitely see much more of a decentralized model and that sometimes also have to do a little bit to do with a structure a lot of a gaming deal have cash a close Plus and earn out to be earned over two years sometimes sometimes more and you know I'm just what do you think before you go to this book what do you think about that structure that's like the standard structure across our industry but do you think that's the way we should be going forward right because peak the peak deal this hat did not include that this is interesting well Peak I guess peak had to mature games I'm not sure how much they had in the pipeline and Zynga from my

perspective has been one of those buyers who often made all upfront offers you mix of cash and stock versus a lot of other buyers term sheets we get half a significant turnout and I mean I think the earn out structure is good because it kind of pitches the gaps is you get valued on what you have currently and then you know the gaming enterpreneurs they always think the next games gonna be amazing and it's gonna be a massive hit and you as a buyer look at it is like love it to happen and if it just happened I'm very happy to pay you a lot of money but it might be you know a medium successful game or not that successful and exotic age you shouldn't be rewarded so with a very content and title driven business I think it's a model that does make sense do you think that there will the zinger deals in the future just given the huge payouts a small giant and that we're not

seeing it in the latest deal with peak that they will they will do you think that is what caused them to not want to structure earn outs into the existing deals and potentially future deals I think that small giant ear was also they didn't buy hundred percent of the equity so it was kind of remember the number of 70 or 80 percent deal only enough you know somewhat similar to to an earn out where the 15 team you know it's fully motivated and states and equity holder versus a full buyout but generally I don't see the model changing much I think continue to see a erna model from from all the large buyers right and maybe a follow-up question just in terms of the point that that Jeff you're making about people wanting to get acquired by Zynga and sod your point about like the decentralized model but if you're if you are a highly profitable game studio and you're going to be

decentralized anyway what is a motivation to be why would you want to be acquired by Zynga what is a motivation for some of these companies to become part of this larger organization rather than again if you're highly profitable just to continue to you know print money and be in charge of your own sort of ship having gone through that I can I can explain I mean firstly there's other buyers available there's not just Inga I should come to Miniclip we'd love you I think I think the point there is around where we talk about decentralization we're still talking about a semblance of best practice being shared and like we talked about economies of scale being recognized and you know you can actually make use of them and one of the big ways

of doing that for instance is marketing right having more marketing buying power having maybe a bigger war chest at your proposed your disposal all of those things tend to come with a bigger organization so you could be a profitable studio and you could be doing very very well but if you really want to make that next step up and that next leap up you probably do need to be with a bigger player because you just won't have the kind of cash flows a little quiddity of you know reserves to be able to weakly compete in the more mature categories right if you're in your own category where you've kind of got your own blue ocean and there's no one competing with you then you crack on but if you're in say the match three genre you know you just be talked about at length if you really want to catch the the major players they're the player X is the kings the peaks for that matter you need to have really deep pockets if you want

to get to that level right otherwise you'll have a good business but you'll kind of stay there it's very difficult to compete I mean we saw without clubbing and matching t'n they did a good job they really blitz their that their network but ultimately weren't able to really keep that game as as high up as possible because you've got to keep investing in those titles you've got to keep you know you're gonna have very very deep pockets to be able to do that and I think some studios and some founders and entrepreneurs and some management teams have the ambition to take their game to the and reach the widest audience and if you really want to do that you do you do need a partner now I really believe that and one of the key that again I can mention the Miniclip Tencent relationship the other thing that really helped even though $0.10 you know doesn't operate our business on a day to day basis they just unlock a different level of ambition for us that's what happened with with with our deal it was a mentality shift for us to look at the

market in a different way to really go and attack and get to the top and become become category leaders in multiple categories that we wouldn't have been probably doing ourselves if we were still the privately owned bootstrap business that was very profitable but you know we just we just had a good business but to get to that next level to really get it to be you know one of the top companies in the world you kind of needed $0.10 to unlock that for us and I feel like that's the way for a lot of these guys like if you've operated your business for the last two or three years and then you've had decent growth and we all know the situation it's much harder they grow now Jeff touched upon it with the CPI situation you start looking at how I'm gonna accelerate that and and typically a big apartment helping you get there is the way to do it you want a Big Brother to help you up that's how I see it I mean that's certainly the case other what do you side you mentioned before I mean the

companies that are getting to scale there's some of them are bootstrap but a lot of them have some outside capital at some point you know they do want to get to a liquidity that's one and the second you know it's a hit driven business and it is volatile and the company that might be doing great today the next two titles might be not as good and it's kind of just something to be risking - yeah so there might be founders of very profitable game studios that look at for example an MZ type 2 situation and then they're like okay well maybe I should just lock in my gains or something like that off the table right that's what they thought yeah okay so maybe shifting now towards buyers in the market now obviously Zynga still front just raise money there's scope Lee Jam city you know tilting point player X Activision yeah there's a bunch of guys and increasingly I'm hearing a lot of rumors about you

guys have not meant cliff so the word on the street is MIDI clips gonna increases ambitions for M&A pretty significantly but so maybe you could talk about that and then who do you guys view as kind of the most active buyers moving forward right now yeah thank you Justin we yeah we are very very active we are very keen to many deals it's it's certain a big ambition for us we have a new CEO and Jurgen I found a rock small has become our president and we've our new CEO is is the ex-president of Tencent Europe so I think you know we know what $0.10 like they they've build that ocean into us as well and and and we very much want to take those on board and yeah if if there is a deal going you you could usually be in the mix thank you Michael for all of the send our way yeah we will be there

we see we're seeing most stuff and if we if you are watching this and you haven't sent your stuff over to us please do we are looking why why is because we've talked about all those things before but I think for us what we keen on doing is we've actually got a really solid business in in in our kind of sports franchises around April pool and motorsport manager and darts fury and soccer stars and football strike and golf battle and what we want to do is we want to become the world's most popular games company and the way you do that is by having as many categories as possible right and we can't build every type of game we can't enter every category so what we're gonna do is we're gonna try and work with the best and brightest teams at different phases of their kind of life cycle and we will then try and

get there and and get to the top so you know we're quite early on you know with their bubble shooter franchise they it's one of those games which people didn't really recognize and see that was a good opportunity there but it's it's the number one bubble shooter in the world we have just a some organics yeah and that's what we like we liked it also so we value da you for instance do you use a big thing that we look at that many other companies may dismiss or not put as much value on top of so organics is super important and then another company we recently acquired was a p2 Square and we and we bought that studio from out play who's another great company but we bought them because we really wanted to go into the shooter market because we see a good overlap with the kind of audience that we've got currently and we will be building games as them and trying to create something with people who have been making shooter games in the last 10-15 years so for us it's

about working with great teams and we're we're lucky at Miniclip is we have the strategy of working across the whole spectrum so we can we because of the vacuum tense and we can go right to the top of the market with the mortgagor businesses that have you know created fantastic value already and are still growing too right at the bottom where it's it's probably still a studio of like 3 to 4 people who are making games and had some success but need to you know push on with with services that we can provide so I think we're a unique acquiring in the market where we look at you know both ends of the spectrum we're not just looking at the top we're looking across the whole the whole breadth of it ok you have a small studio maybe you want to sell that was that the whole point of this service call I believe I don't know if I can say this you can cut it out but I believe some of my team members are talking with you definitely come across the table put it that way inside it this is kind of speculation on my part but given your

games background and you know by the way he's awesome guy I met him when I was at Sega is it fair to say that you guys will probably not only be acquiring like mobile free-to-play but a little more broadly just given your games background right now we will concentrate on mobile made some investments in PC developers I'm not sure if we disclose them but we have made some we will we will we're a games company at the end of the day right and wherever the the audience's might be we will go after them right now it just makes sense to be in the mobile ecosystem it's the biggest ecosystem there's still a lot of growth we feel there's still a lot of opportunity so we will stay there for now if we were gonna enter somewhere else it probably would be PC but we're at were we're a few years away from attacking that in a real deep manner but again that's that's $0.10 focused right now that they're

doing a lot of deals in that space but we will concentrate primarily on on mobile at this moment in time okay and Michael you seems like you represent a lot of companies and you're probably talking to a lot of the big acquires out there I'd like can you give us a sense of who you think is going to be most active kind of in the near term to medium term sure I mean you already mentioned several names and they were all great some of them you haven't mentioned it's it's blue it's now looking to do acquisitions again I mean they got the crowd stuff or for next to nothing this is a rumor about them acquiring hutch is that correct yeah I don't know might be wondering at but I think they're gonna get much more active probably some time next year depends how I go the platform companies like Google study I was looking at several tiers with a launch of study of being I would say medium at best it would scale back but I think if you know

they gain more traction having some original content on it I think that's one of the strategies some of the smaller ones that did some financings and and are pretty just looking at the Americas I mean probably going to see some tears out of wildlife and moon active just did a 10% secondary inside came in but they're also actively looking at on the PC side embrace her as I mentioned before has been super active it expected them to be very active to play tika is kind of gearing up for their IPO and you know they bought Booga seriously and they're really looking to diversify out of the kind of a social casino space having some other kind of broadly company in Mobile and I expect them to do some additional acquisitions before the IPO we've indie game laugh there's another one I mean we'd sold a

company to them a little bit more than a year ago probably one of the very few media companies they're looking to add gaming's I mean all the other media companies and the u.s. at least I really divesting like what we talked about with AT&T and Warner Brothers I mean you mentioned play risks I think they've been very active in the Russian market and and started to dabble into Eastern Europe probably gonna expect much more deals from them I think what's gonna be interesting is also Biden's Biden's ambition is to be potentially as large as 10 cent in very few years that's at least what they say their efficiency is and they need to get there through acquisitions and also considering the situation with tick tock here in the US if it's gonna be banned or not I expect them to be you know do a good amount of deals probably more in Europe than in the u.s. due to the political reasons Sony is looking at additional studios I

mean it's obviously console cycle happening right now out of the the other Asian ones I mean net model compress and seem soft expect several deals still happening another Shepherd category is kind of the advertising companies like a blob and obviously has been super active with a lot of acquisitions but also iron swords kind of following at Levin's path and they're also looking at several kind of Hiva Cashel studios and finally adjacent categories the private equity firms saw very little intro thinking from private equity firms a little bit more than two years ago but now saw some pills without we're in the market with tidy profit of companies a lot of interest and in and Blackstone acquired murica in acquired fungal which somewhat is similar to a blob and an ion source so expect more deals from them but also expect much more deals from other private equity firms that want to

enter the space and then Jeff in terms of the public companies you know we've certainly seen activity by some of the bigger names ei hasn't done much do you have any thoughts in terms of EI and also like how many bullets does Zynga and some of these other companies have left what kind of what skills acquisitions are possible yes what would Zynga you know as long as these deals keep working I think they can they can raise the capital the question for Zynga is what can they buy because they kind of just bought the big elephant in the room so it's he mentioned to see whether they kind of switch back to buying some smaller sort of more bolt-on acquisitions or what they kind of choose to do as they're digesting peak in terms of EI it doesn't seem like there's that much buying from their executive team to get bigger and mobile they sort of view mobile as a red ocean to some extent they always talk about how you know it's a tough space and they're one of the few players that that are profitable there I think they have talked about having 40% margins it is an area of disappointment from for

investors just the fact that they're you know the last two years I think they've been negative growth when the markets growing double digits you know we'll talk about this in a little bit but I think you know by Warner Brothers would actually be interesting for EA from from that perspective right so maybe we should like actually talk about some of the targets so you know there's there's a lot of names potentially left out there still although diminishing you know some of the names include you know even some bigger companies like Vudu quali on the hyper casual side there's also tactile touch moon active maybe even a bigger player could acquire wildlife huge mag interactive cage Andheri Nord current so out of all these names and and sod from your perspective since you're actively in the market to buy maybe you can tip us off in terms of who GV is a most attractive and why all of those guys are are wonderful people wonderful companies and I'm happy

to call most of the the management team friends of mine and in all of the people that you mentioned I think for us there is that group of people there's also a lot of other companies which are very exciting I think in terms of tip-off I don't know how much I can say even how many confidentiality agreements I've signed so I've got to be very very careful but I would say this I think every every company is in play and I think it's in play because of Google Microsoft Sony Facebook they maybe not so much Facebook but um and had Tencent Neddy's & Bide dance right so the idea that wildlife and you know if the brothers want to do something then I'm sure there could be a deal done there I even believe play rigs could happen

another again two brothers what we've learnt in Mobile is if you want to have success create a business with your brother that's for sure I think so I think there's definitely lots of potential for for somebody to pick up a company like that in terms of the hyper casuals I think it's gonna get tough you've got some really good companies there already Rudy quali rollick good job say games these are great companies I think what I find interesting about their strategy is all of them if you talk to them they publicly said they're all trying to move more into casual than - casual and I think that's an interesting point so how they make that tragic transition whether they do that with a strategic partner acquiring them or if they do that themselves will be interesting I believe if I was them I would seek a partner to

help the risk that move the other thing that we don't talk about is we this this is a list of companies we'll be talking about today but I mean voodoo came out of a situation where people for ketchup will never be caught right this great companies being formed all the time and there will be new acquisition targets as well which is why it's important to keep our eyes on the market keep keep our eyes and to see where where there could be potential grow from other players all of those guys would be dream acquisitions the one that I'm gonna just list here and I'm sure Charlie won't like it but he gets pinged all the time his first touch games that's the deal everybody wants to do but the deal nobody will do because Charlie doesn't want to sell so this is my practice tactic on him we need your in the UK let's do this I think it's well known but that's if that's a good

acquisition target for people as well but often don't get talked about in the same way so I think I think there's plenty of targets left in the market it's just a case of how does it fit in with your product strategy how does it fit in with where you want to go as a business because one thing that you probably don't want to do is have a kind of by everyone and just eat it up I mean it needs to fit and it needs to make sense in your product strategy because otherwise it's gonna start to look like you're just acquiring assets for the sake of it so often we'll get sent deals which doesn't really fit with where we're going and even though they're great companies buy great founders and great teams if it doesn't really fit our product strategy all the way where we want to go we tend to pass on those deals and I think that you could say that from almost all the buyers that we've talked about so in terms of which targets are left it's also which targets

make sense so four into touch good friends of mine this is my pitch as to why they probably soon start why I shouldn't say this Glu Glu had racing but I've also they've entered into that space before so it makes sense but what would hutch make sense bazinga with the CSR franchises do you know I mean like yeah it might be that you know hutch looks really great to a company like Zynga but then when you actually think about it from their own product portfolio and the teams that they have in place does it make sense always and I think that's where the targets aren't always just all naturally it should go there or should go here it's there's lots of things that come into play above and beyond price expectations and and and you know relationships it also comes into how they fit into the overall group that does acquire them Michael do you have any predictions on who the next company or companies that are going to be taken out are gonna be no real predictions but

just some other companies that are interested in the space I mean you just mentioned the hyper casual space and ketchup and one company that I think is really strong and up-and-coming is from one of the ketchup founders this game jam in a hyper casual space it was really well yeah question yeah I think they're doing like really small team but profitable and very just growing phenomenally then you know voodoo has been in the news a lot I mean I think they exploded already do or or a full deal and you know they've been in the news not for a while I'm not sure if a deal that's still happening other companies that are kind of larger at scale which I think are interesting is it's gizmo or this blonde they're sort of casual games and then music entertaining games they want like you know where you like know the 100 million and highly highly profitable or or comma games is another one they're known for the poker is games I think they're also around 100 million if I hadn't profitable kind of that's you know once

you get into triple digit revenue numbers and incredible even our March and that's just a great target and I guess you know a lot of fires I thought before would want to buy them and just need to get to the right point to potenti make a deal on asana super interesting is like like ether max they've been around for a while trivia cracks been super successful and they kind of uh you know on the key growth mode again that's that's one of a situation where you know the founder made so much money it's kind of neither really why does he want to do a deal it needs to be the right partner and what they feel really take the company forward and also where it's like meaningful for the whole team like working at another really cool company and who knows what's happening with roblox I mean roblox are just checked yesterday they were the top grossing game on on iOS in the US and you know that's obviously a high super

high value deal but it's obviously also very attractive and you know they've got probably gonna think about going public at some point or or there's gonna be an M&A deal so just some additional names then in Jeff in terms of the public names certainly I think that while we've mentioned a lot of names before for the public companies to show additional revenue growth there's a certain amount of skill that they're gonna have to you know have to achieve so in terms of like the companies as targets that have that scale for some of the bigger you know the bigger public companies who are some of the more attractive targets to them in your opinion what do you mean just how big they would need to be to write write interesting for the market and I guess it depends you know if you're talking about glue like they're probably gonna look to buy something with I don't know 50 to 100 million in revenue and that will be somewhat meaningful to them if you're Zynga you need to do something bigger right if you're yeah or

Activision you need to do something even bigger that's you know a hot take but the one name that I think is interesting on this list we haven't talked about too much is moon active you know social casino it's obviously very hot right now just look at side plays sort of stock price on the flip side you had Double Down which was supposed to IPO but actually had to pull back because they couldn't get enough demand for their IPO so I think yeah an interesting little dynamic there in that social casino is really hot right now but I think there's a lot of worries from investors in the market just around potential more widespread high gaming legislation here in the US and what that could mean for that market and it we mentioned before that I think moon active just you know raised money at at 1.2 or when three billion valuation which is pretty impressive I think they're sort of a single product studio at this point so you know I'm interested to see if they want to be acquires if they want to I P oh oh or you know that could be

maybe the next target for Zynga or something like that but I think they're you know one of the more interesting ones on this list no Mooney aqua financing - anyways let's appear secondary so the funders took some cash okay and then maybe we can now just talk about Warner Brothers right so there's a lot of rumors in the industry EA versus Activision and now Microsoft and you know kind of at the beginning of the call we you know before we started the call we talked about how there are some rumors about actually there being multiple buyers and Warren brothers getting split up in terms of HD versus mobile or something like that do you guys have any thoughts about who the most where we're you know what's your speculation in terms of where WB winds up and then you know what makes the most sense I will talk only about the console side because the mobile sites too close to home that's another podcast for another time I think I mean firstly

there are great assets in there I think people don't realize how many good assets there are in this thing when you say Warner Brothers people think oh is that what a lot of interactive is a fantastic company with some really great studios in there and I think any body like EA a Activision and when Microsoft I think is a rumor as well makes a lot of sense for me if I was Microsoft I would do everything I could to get this asset under my into my stable I don't know if it fits for EA I'm not sure it makes that much sense given what they've done they've already got great IP licenses they tend to go for the really Triple A licenses and from what I can see but yeah I think I think I think Microsoft would be a phenomenal home for WB it just makes sense to me when I think about it from from the HD console

side of things then again on the mobile side I will not speculate okay any thoughts from you Jeff from Mike minute I would say for Microsoft and they have all the money in the world but it is hard you know just if you're doing it on a traditional like a creation analysis if you're gonna take these assets and basically say well now you can only sell maybe 50% of consoles it it just becomes a lot harder to make the math work you know you do eliminate the platform feed so that helps a bit but it you know it's very hard to imagine they could bid the same amount of money just from an economic perspective office if they have the money but to make the math work for that kind of deal I actually think EA is is the most likely or makes the most sense for a couple reasons you know first they they do a pretty good job and at least comfortable working with IP you know with Star Wars and some other stuff they actually have a prior relationship with Warner Brothers in the sense that Warner Brothers is one of the few third parties

that's in their origin access subscription and then also the mobile challenges that they've had that we talked about before I think that's a pretty good you know immediate shot in the arm for them the other name I would throw I mean there's a million names we could throw out there but is Activision you know they could sneak in everyone I think knows this but Bobby Kotick has kind of a few hundred million reasons why he would make want to make that happen he's got a transformative transaction clause in his contract where if they do a deal that's I think it's over 20 percent creative he gets like some gigantic sum of money so you know that could always make sense and obviously they have things so they're you know clearly big and mobile as well the only problem with them is they typically have tried to they want to own their at their IP and Warner Brothers obviously doesn't offer that but I'll pass it over to Michael I'm sure he has a lot of thoughts on this I said is that definitive like the DC stuff won't come with the deal would you just have to and

I don't obviously know this at all but I think you they would just have to structure a deal where they would pay you know a license fees similar to how EA does with Star Wars like I don't they're always not selling the IP but you know no reason why they couldn't keep making games with the IPT yeah it'd just be an ongoing license feat it wouldn't be a yeah I mean that would be a steal if you got the DC catalog as well but no here just be an ongoing license which makes a lot of sense that wouldn't be a problem I think okay great yeah I didn't really have much to add I mean Microsoft F&E makes a lot of sense Activision really you know have not been acquisitive in the past I may be Bob King I mean you know doing one deal every five or ten years it's not a very acquisitive but having said that I believe their strategy change a little bit and they do want to be much more active only in the nasai and and also looking at the proximity so I wouldn't

be surprised if you know they make an offer not sure if they get there on the valuation side it's in the past it's been more kind of valuation sensitive but but we'll see but we're definitely gonna see more deals from form acquisition the way I see it let's be fair to Activision whenever they do do a deal is some deal right they usually vary us to deals right when they do them yeah I wonder where that management incentive and so I think that can't be under emphasized right that those those type of things really make a huge difference I think I should buy roblox and that's one that came up earlier I think that would be like a whole yeah I mean anyone should want iRobot it's a great asset but I think Bobby can get in on the fun I'll be pretty pretty transformative I think right ok so then moving on to the last question in terms of predictions in terms of M&A short term longer term I may be wrong I mean we talked about a bunch of names in terms of acquisition targets out there

but kind of the sense I get as well as that it seems like we're gonna start to slow down but having said that we did talk about a lot of names what do you guys think in terms of just general trends and then do we see a slowdown based upon the number of let's say attractive or targets that make sense or how to fit in the short term to medium term well I think this will it depends on your definition of medium all right well I think I think I think where I talk about that maturity of a company as opposed to how much they might generate in terms of revenue like the company had is a fully formed entity where you can run it as a decentralized business compared to somebody's not I feel like the kind of you know single entity where you can

acquire that and just kind of you know leave them alone those companies there are fewer and fewer of those sure right but in terms of the ones in which you could help grow and you they require more effort I think there's there's less plenty of those out there in the market it just depends on how much effort one wants to deploy on on helping those companies grow but if the companies are there in terms of acquisitions you then have to then your strategy has to be okay we need to organically grow and build our own games which people will always do anyway and then you you know there's no monopoly on great ideas so you may see some great stuff but you know that if you could insert yourselves in there to help that company grow and it then it just adds more benefit I mean indeed one of them that the deals that we're more famous for is agario we saw exactly that we saw an opportunity where single developer needed the support of a bigger company

to help it really get to the next phase I mean I don't think there's a company in the world who wouldn't take that deal right is it's it's it's it's a great deal so it just means that yeah there's fewer companies who could be a decentralized system and they just leave them and get on with it and they could grow well but I think there's plenty of opportunity in terms of the companies who are still growing and could become you know huge huge companies with the right support that I think is you know I think there's dare I say it thousands there's many companies that people haven't even heard of we'll talk about it it's talking to me sometimes how people forget about some really big companies and that's why I think the mobile gaming space is still so interesting it could be a company in in in in South America or in Southeast Asia which many people haven't heard of or even indeed in China right this there's a lot of Chinese

developers who are doing really well in Western markets and books about will never ever really brings up and they're actually some of the biggest companies in the world there's a good example yeah yeah right yeah and you just you just think to yourself why is I'm able to well Lilith you know and why isn't anybody talking about some of the companies there so this I think there's a lot of opportunity it's just some some things I just better understood and talked about in the press and and on panels and others in terms of that the whether it's China or I know like some of the bigger public companies avoid acquiring companies in like Russia or whatever so isn't that just a natural barrier against acquiring some of those companies in those regions you have to if you really want to if you yeah sure but if you you have to go through some complexity now if you really want to access those assets though it you kind of have to take that approach I mean you

can't look at it as being you know if you're sensitive to geographies then yeah there's hardly anything yet right there's this you could literally put it on a list you know it's very small piece of paper but if you're not restricted by that then there's plenty there's absolutely loads of so just if I'm understanding you correctly all the low-hanging fruit is gone in terms of the Lego block plug-and-play and decentralized and ready to go but if you're if you're willing to broaden your geographical scope and if you're willing to sort of roll up your sleeves and help some of these studios that are on the cusp of hitting scale get to scale then there are lots of opportunities agreed yeah exactly got it I mean from my perspective there's still a large number of companies that are currently kind of large I mean not you know not massive but if you look at the hundred million plus revenue that are currently there I mean you talk about moon active wildfires Pak Thailand and what's

interested in the space is so dynamic it's like companies if they have one successful title they can grow in two hundred million dollar plus company within a very short period of time and just looking back when epic launch fortnight like being nobody really outside of the tool space and you know producing one of the most successful games in history so I think we're gonna see a lot of new companies emerging and getting the scale and on the seven the general M&A trend what what I'm also hearing from a lot of the publicly traded company is you know a lot of them done really well really well the last several months with everybody staying at home a lot of them are trading at all-time high of 52 week high all of them see that that's not gonna continue like this forever and on the second half of the year some of the engagements in revenue might tamper up a

little bit and a lot of them are looking to you know as a public company you want to continue to show strong top-line maybe that our growth and that's why we're gonna expect a lot of deals happening kind of towards you know q4 because a lot of the public companies do want to add meaningful acquisitions to to their financials so there's gonna be even you know probably more aggressiveness on the buyer side as well right I think for what you're talking about and glues probably the poster child for that sort of situation but anyway Jeff in any thoughts yeah and I think Michael made a lot of good points about companies kind of needing to having tough comps and maybe needing to make acquisitions to grow so I think that's valid I agree with with both you guys I think there's gonna be a lot of activity you know if you just think like investors in the broader market are really starting to focus on games you know this trend of entertainment

becoming more interactive more social games becoming platforms like I think you're seeing a lot of mainstream and best taking note of those trends you know epic being the poster child and you know this Metaverse concept that's kind of a big buzzword right now a lot of investors are chasing that and I think these are trends that investors want to play so I think you're gonna continue to see a lot of capital markets activity you know we've touched on some of these already but we've got play teeka probably IPO you soon unity IPO in which is gonna be massive maybe I love it so that's just going to get broader you know technology and and kind of public market investors interested puts more capital into the space which you know should kind of in the flywheel and and and get these public companies doing more acquisitions and and also more startups because you know as public valuations go up VCC that good people good employees that some of these bigger companies say well I could start my own company make a ton of money they start companies the whole ecosystem

grow so I think you know we're in the early innings they've kind of this this trend and you know it's exciting space to for almost to be part of all right great so on that positive note I think we can end it here but is there a final message that any of you have for the audience or saw it if there if there's any company that's looking to be acquired by Miniclip how can they reach out to you this it's its first name dot last name at minicab CARICOM so start out really kept calm so yeah just yeah feel free to ping me or if anybody just wants to have a chat about this it's a it's a topic that it's super interesting for us not for me anyway so thanks for setting up the time and having this conversation it's been great thanks and if anybody is interested just has a videogames newsletter so make sure you sign up for that and if you want to sell your company talk to Michael if you want to

be added to my distribution list like my institutional research here at Stephens you can find me just you know Jeff Cohen on LinkedIn great yeah my email is Michael got Metzger tricks and also feel free to connect with me on LinkedIn I tried to you know post all the all the deals that happening in real time it's possible so and and also happy to check but in the end up in there that's you know to wondering what to do I know we're ending there but I don't know if this is exist the question I wanted to ask you guys if there was one company that you guys could acquire or bring you know by which company would it be Lilith Lilith yeah miniclip I mean it's all about price right but I think like roblox and epic or - yeah yeah actually yeah or front of all these trends that I think are you

know right I'll be in social Metaverse ya know yeah if roblox is out there it's yeah for sure roblox the thing is I think there would be a Top Trumps right there always be a Top Trumps to to do it okay cool yeah well thank you very much for your time everyone and uh yeah that's it Thanks thank you [Applause] [Music] [Music]