Katamari Royale: Consolidation in Gaming
Updated: Mar 8
The market for games clearly continues to consolidate and grow. As pointed out by Transcend’s founding partner Shanti Bergel, Sony’s purchase of Bungie last month brought total mergers and acquisitions (M&A) expenditure in 2022 to $85 billion. This 2-month total exceeds all of the M&A expenditure in 2021. M&A in 2021 was, in turn, 3x larger than all the M&A expenditure in 2020. Incredible.
The overarching theme of industry consolidation is a familiar one for those of us working in the business of games. Gaming businesses of all shapes and sizes continue to snowball together into ever larger conglomerations of investment and operating prowess. The net effect? Every month that passes there are fewer independent companies left to battle for the future of gaming or dare we say it the multiverse (does anyone truly believe the future is a singular metaverse?) We call this dynamic towards consolidation Katamari Royale.
In our former lives as operators, the General Partners at Transcend played a significant, active role in industry consolidation. Collectively, our efforts unlocked over $3 billion in value for shareholders through mergers, acquisitions and associated organic growth. In doing so, we enabled and empowered some of the best teams in the world to build bigger, more innovative and successful games for truly global audiences.
Reflecting on that experience and today’s market, we see this battle royale splitting into three levels: publisher, platform, and ecosystem.
On the publisher level, leading publishers have been using balance sheet strength, robust equity multiples and cheap debt financing to snatch up development studios and specialty publishing organizations. A great example of this would be the Embracer Group, which used the proceeds from their successful IPO and capital raised from subsequent debt financings to fund the acquisition of some exceptional teams - Gearbox Entertainment, THQNordic, and our close friends over at DECA Games. Today, as a result of these deals, Embracer is one of the biggest public game companies in the world.
On the platform level, almost everyone immediately thinks of the epic, ongoing boxing match between Microsoft and Sony. The heavyweights of console gaming are fighting with renewed vigor and nothing held back. In September 2021, Microsoft acquired Zenimax for $7.5 billion; then they acquired Activision Blizzard in January 2022 for $69 billion. Sony, in turn, countered by acquiring Bungie for $3.6 billion. However, there are other platforms to consider - Apple, Google, Roblox. It feels like this tournament may have just begun.
Then, on the ecosystem level, we see the industry moving towards something even grander - a heterogeneous “multiverse” of interconnected business models, services and intellectual property, all operating in service of the gamer. We are talking about cloud gaming, virtual reality, player-owned IP and games, centralized and decentralized tech, cryptocurrencies and more. What will be different? The manner by which current and future industry leaders partner with gamers to fund, build, launch and operate services.
We believe gamers should be and will be the owners and arbiters of the most diverse, inclusive, creative, interconnected and constructive version of gaming ever. For now, the above consolidation trends appear to be accelerating this evolution to the positive. What an exciting and refreshing proposition. Game on!
If you share our view of this landscape and future, please let us know. We’re always looking to partner with people that share our view of a bright, positive future for games.