Navigating Mergers and Acquisitions in the Online Gaming Industry
October 31, 2023
The online gaming industry has seen considerable growth in recent years and has evolved due to strategic mergers and acquisitions (M&A). Not only has online gaming expanded substantially, but the landscape has been forever changed. The COVID-19 pandemic and recent changes in the law have reshaped the online gaming sector and increased the number of M&A deals.
M&A deals are a strategic tool used by corporate service providers and online gaming operators to build and expand their reach. Expansion allows them to extend their influence and broaden their customer base. Strategically planned M&A deals can further increase market penetration and diversity in customer pools.
Understanding Mergers and Acquisitions in the Gaming Industry
What was once a niche hobby is now a worldwide market worth billions of dollars and growing. The online gaming niche has seen remarkable maturation due partly to mergers and acquisitions deals that have assisted in reshaping this diverse sector. Online gaming operators and corporate service providers now have many options available at their fingertips, and M&A deals allow them to leverage their strengths to gain a more significant percentage of the market share. This article will discuss M&A deals and their use in the online gaming industry. It will also explore opportunities for gaming operators and corporate service providers looking to license their operations through strategic partnerships.
The online gaming industry has experienced an influx of growth in recent years, which has attracted new entries into the market and increased M&A interest. Here are a few key trends in M&A deals in the online gaming industry:
Market Share Consolidation
The online gaming industry operates like others, where more established entities routinely acquire smaller companies. This business tactic allows larger companies to eliminate competitors, expand their market reach, and solidify their position in the gaming market. M&A deals consolidate market shares, allowing stronger competitors to capture more of the online gaming audience. Consolidating market shares also allows established companies to diversify their gaming portfolios to protect their interests since the industry is unpredictable.
A great example happened in September 2020 when Microsoft acquired ZeniMax Media. ZeniMax Media is the parent company of an incredibly well-known gaming company called Bethesda Softworks, which developed popular games such as “Fallout” and “The Elder Scrolls,” with a built-in gaming community. Bethesda Softworks owns a diverse and successful gaming portfolio with plenty of room to grow. This M&A deal provided Microsoft with new options and made it even more competitive in the console and online gaming market.
Non-Gaming Companies Invest in the Market
Many corporations not affiliated with the online gaming market are now investing in the sector. They understand the upward potential and seize the opportunity to grow and expand. The lines between gaming and non-gaming companies are growing thin due to the vast appeal of the community and the number of companies that see the potential revenue that a loyal fan base can bring in.
An excellent example of this phenomenon is telecommunications entities utilizing the online gaming industry to strengthen their connections to their customer base by offering bundled packages. Telecommunications companies have the reach but often need the expertise of industry professionals to capitalize on these potential revenue streams.
Opportunities to Expand Into New Markets
Gaming operators have discovered more opportunities to break into new markets through M&A deals. Emerging markets entice companies desiring a diverse customer base and provide unlimited potential for the next stage in the online gaming industry.
Mobile gaming is one area of online gaming that has recently gained traction in Southeast Asia. Smartphone usage rates are steadily climbing, and gaming operators are constantly entering emerging markets via acquisitions or partnerships with existing brands and local companies with established customer bases.
Online Gaming M&A Challenges
While it’s well-known that M&A deals in the gaming industry provide a multitude of benefits, they are also plagued by many hurdles in the online gaming industry, such as:
Every industry faces regulatory challenges that they must overcome, and online gaming is no different. Companies may need help navigating a winding road of complex regulations and legal issues that often vary depending on the jurisdiction. Online gaming operators may have to deal with multiple regulatory hurdles in different jurisdictions to find success. Expanding a business through M&A deals is challenging, and online gaming operators must be prepared to comply with strict licensing requirements and jurisdictional laws.
Online gaming has reached over-saturation in some markets that have experienced fierce competition, and it may be challenging to capture market shares. It can also cost a fortune to acquire new users. Gaming operators must be innovative to expand into these markets.
Valuating and Integrating Companies
Calculating the actual value of an online gaming company can take time, and miscalculations can lead to overpaying for an asset. The target company must be valued appropriately before an M&A deal can be considered. Properly integrating a new company into an existing entity often presents difficulties due to varying technologies and dissimilar corporate cultures.
Licensing Operations Opportunities
The online gaming M&A scene provides a host of enticing opportunities, such as:
Easy Access to Operating Capital
Strategic partnerships such as licensing gaming operations to other entities can unlock necessary capital. This influx of new funding can help online gaming companies invest in the future and break into new markets.
Forming strategic partnerships with other established companies can expose your company to new emerging markets and gaming communities. Merging and working with experienced names in the industry can improve your online gaming operations. Further, formulating licensing agreements can open new doors for your company.
Reducing risk is the name of the game when it comes to the online gaming industry, and licensing your operations to a partner can help lower your risk exposure. Partnerships can assist with sharing resources and responsibility and reducing your team’s risk.
The online gaming industry is growing at a blistering pace and undergoing a period of transformation due in part to M&A deals. There are currently unique opportunities in the market, and gaming operators and corporate service providers desiring to license their operations have a veritable gold mine at their fingertips. Leveraging M&A deals is the most efficient way for gaming operations to build strategic partnerships, lower their risk tolerance, and gain access to capital that would otherwise be out of their reach. The online gaming industry will continue to evolve and grow, and those who embrace the new landscape will thrive in this competitive market.