Title: Video Game Sector Faces Year-Long Decline in Investments and M&As, But a Record-Breaking Second Half Predicted
The video game sector has been experiencing a year-long decline in investments and mergers & acquisitions (M&As), primarily due to challenges such as higher interest rates, regulatory uncertainties, cryptocurrency crackdowns, and global economic instabilities. These factors have resulted in a scarcity of funding opportunities and hindered initial public offerings (IPOs) in the industry, as per a report by Digital Development Management (DDM), a game industry advisory firm.
According to DDM’s latest quarterly report, the gaming industry has witnessed consistent declines in investment value and volume over the past four quarters, marking the sector’s weakest performance since 2016. Notably, the second quarter of 2023 saw a significant decrease in total investments, with only $700 million raised through 126 deals, representing a one-third decline from the first quarter. M&A transactions were severely affected, plummeting by 81% to $100 million across 31 deals. Moreover, IPOs experienced a substantial 97.5% decrease, with a mere $10 million raised in market capitalization from a single IPO.
Even investor groups have not been immune to these challenges, as funds raised only $7.8 billion in the quarter, reflecting an 18% decline compared to the previous quarter. This indicates that securing capital has become more difficult in the current market environment, given the prevailing uncertainties.
Adding to the complexity of the fundraising landscape are regulatory actions taken by the U.S. Securities & Exchange Commission, which has cracked down on blockchain and cryptocurrency companies. Previously, investments in crypto-related games were a significant source of funding in the sector, but the value of funds invested in this area has now halved. The report suggests that investors may be adopting a cautious approach due to uncertainties surrounding blockchain regulations.
Despite these challenges, DDM’s report offers a glimmer of hope by predicting a potentially record-breaking second half for 2023. One key contributing factor to this revival is Microsoft’s proposed acquisition of one of the industry’s largest publishers, Activision-Blizzard, for nearly $69 billion. Although the deal is still undergoing regulatory review, Microsoft appears poised to address concerns raised by authorities and may finalize the acquisition as early as this quarter, making it the biggest acquisition in video game history.
Another notable deal expected for the second half of 2023 is Savvy Games Group’s acquisition of mobile games publisher Scopely for $4.9 billion, which has already been closed in this quarter.
Despite the challenging investment climate, DDM’s data reveals that the second quarter of 2023 was the third most active quarter in terms of the number of deals, surpassing the performance of previous years.
While the overall pace of M&As and investments remains steady, average deal values have decreased, indicating a tougher fundraising climate for entrepreneurs and startups. However, investors are still willing to make smaller investments in the sector as they seek opportunities amid the downturn. Bargain hunting seems to be the prevailing strategy for investors.
Aonic Group and Atari emerged as the most active acquirers in the second quarter of 2023, with two deals each. Only one IPO took place during this period, with Polish developer and service provider VRFabric debuting on the NewConnect exchange with an $11.4 million market capitalization. This represents the third slowest quarter in terms of IPO activity since 2010, according to DDM’s records.
It is important to note that DDM’s data only includes publicly disclosed deals, counting them once finalized. Additionally, the report focuses on Western investments across various game platforms, including PC, console, mobile, browser, mass community, blockchain, eSports, and AR/VR games.
Despite the limitations of DDM’s report, it offers valuable insights into the current state of the gaming industry. The industry eagerly awaits the second half of 2023, hoping for a resurgence in investments and a potential rebound from the year-long decline.
