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In the first five months of 2021, the game industry has already set a record for the amount of deals in a year, with more than $49 billion in disclosed deals across 527 investments, acquisitions, and public offerings, according to investment bank Drake Star Partners.
So far, 2021 is off to a flying start for the gaming industry, already becoming a record year in terms of dollar volume. Drake Star Partners said companies announced 142 deals between January and May, with a total value of $21 billion for those deals. In addition, three special purpose acquisition companies (SPACs) have raised $4.2 billion. Private game companies have raised $4.2 billion in 314 minority financings from venture capitalists and strategic investors. And the public markets saw $5.4 billion raised in 23 initial public offerings and $14.2 billion raised in secondary offerings and debt financings. Drake Star Partners said 2021 has set a yearly record already, even though it’s only May.
InvestGame said earlier this year that the financings in the first quarter of 2021 surpassed $39 billion, exceeding the total of $33 billion for all of 2020.
“The rapid consolidation, financings and IPOs make sense, and I don’t see it slowing down,” said Michael Metzger, a partner at Drake Star Partners, in an email to GamesBeat. “It’s a reflection of how the public capital market sees the gaming sector. It’s the largest segment within media and continues to show strong growth. Many companies in the space are highly profitable, and the sector has proven to be resilient to downturns.”
Above: The biggest buyers and VCs for games in 2021.
Image Credit: Drake Star Partners
The gaming market continues to see consolidation driven by the big strategic investors like Tencent, Microsoft, Embracer, EPIC, Byte Dance, EA, Stillfront, and Zynga. Gaming is also benefiting from a high inflow of funds into gaming companies primarily in the form of early and late-stage financing by VCs (Bitkraft and Maker) and strategic investors (Tencent, Sony, and Warner Music).
On top of that, the nonfungible token (NFT) and blockchain craze spilled over into large gaming financings with companies such as Animoca and Forte raising large rounds at unicorn valuations (above $1 billion in value).
Public markets continue to be attractive and are seeing landmark gaming IPOs (Playtika, Roblox, AppLovin, Tinybuild, and Huuuge Games) and SPAC deals (JamCity, Play Studios, and Nexters). More private equity firms are mergers and acquisition (M&A) financing deals (Carlyle and KKR). And public strategic investors are raising large secondary offerings and debt financings to drive further M&A (Embracer, EA, and Playtika). AppLovin raised $2 billion at a $28 billion valuation in an IPO, while Epic Games raised $1 billion at a $28 billion in a private funding.
The May update analyzes the first five months of the year in terms of deal activity and volume across market segments and across PC/Console and mobile segments.
“The large appetite of institutional investors is driving IPOs and SPACs, as well as secondary offerings of already public companies to provide capital for M&A,” Metzger said. “Private companies typically trade at a significant discount to public companies. Hence the motivation for private companies to go public, and for public companies to acquire private companies at a lower [earnings before interest, taxes, depreciation, and amortization] EBITDA multiple than their trading multiple. That enabled companies like Embracer to grow rapidly via acquisitions while increasing overall shareholder value. Several of the more recently listed companies like EG7 or Thunderful are following the same model. Tencent is targeting to generate at least half of its revenue in the western markets.”
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