Gaming sees record year for deals with $127B in value | Drake Star

Gaming saw 1,320 announced and/or closed deals for mergers and acquisitions as well as investments, with deal values hitting $127 billion, according to a report by Drake Star.

Drake Star said in its Global Gaming Industry Report that M&A deal value grew to $102.3 billion, a three times increase in value over 2021, said Michael Metzger, partner at Drake Star, in an interview with GamesBeat. It was a year of both records as well as dashed hopes, as the economic downturn took its toll in Q4.

Last year, Drake Star predicted that overall deals could top $150 billion in 2022, but that was before regulatory concerns and the economic downturn took hold. Microsoft’s pending acquisition of Activision Blizzard was the biggest deal of the year at $68.9 billion, but the deal hasn’t closed yet. Also, the Federal Trade Commission is opposing it.

Drake Star tracked 1,320 deals worth $127 billion in gaming in 2022.

“In the second half of the year, there were really no really large deals, besides the Unity/Ironsource deal,” Metzger said. “Still, $127 billion is by far the biggest number ever.”

There were 324 acquisitions in the year, 58 public market deals worth $13.5 billion, and 938 private investments worth $11.1 billion. By comparison, there were 295 acquisitions and 723 private investments in 2021.

“2022 has been the biggest year ever in gaming,” said Metzger. “The biggest deals for the year were the acquisition of Activision by Microsoft (pending close), Zynga by Take-Two, IronSource by Unity, Bungie by Sony, and financing for Epic Games.”

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M&A deals in gaming in 2022.

During Q3’22, it seemed like gaming was defying the overall trend for tech acquisitions and financings. But by Q4’22, it was clear that gaming was getting weaker, Metzger said.

The report analyzes the M&A, financing and public market deal activity for the year including valuation trends and the most active gaming buyers and gaming/crypto investors.

PC/console was again the most active segment (83 deals) for M&A, matched by platform/tools deals (83) and followed by mobile deals (75). While there were very few large deals in the second half of 2022 due to global macroeconomic challenges, deal volume remained stable throughout the year.

More than $11 billion was raised in 900-plus financing rounds of private companies, including 18 large $100 million-plus raises. While the total capital raised declined by 20% over 2021 ($13.5 billion), the number of deals were up by 30%.

Metzger saw some desperation among the SPAC deals, as companies that wanted to bypass the IPO process with quick SPACs found the market closed to them.

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M&A detains for games in 2022.

“This whole year was a horrible, horrible year for public markets, SPACs, and IPOs,” Metzger said.

The most active VCs included Bitkraft, a16z, Galaxy Interactive, Griffin Gaming and Makers Fund. One of the bright spots of the year is that venture capitalists raised over $13 billion in around 30 new and follow-on gaming / blockchain funds.

Metzger said that it was a big year for raising funding for venture capital funds. That means those firms have a lot of money for dry powder, and they could continue to invest even during a downturn.

Blockchain gaming

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Blockchain game financings for all of 2022.

Blockchain gaming was the most active segment (405), followed by mobile (152) and platform / tools (131). Meanwhile, esports saw a steep decline in financing rounds.

More than $4.0 billion was raised by blockchain/NFT gaming companies with almost half of the total amount raised by early-stage companies.

“Blockchain investments over the whole year were really small early-stage numbers,” Metzger said.

Last year, there were 130 deals in the blockchain space worth $4.2 billion in Q4’21. But in Q4’22, there were 210 blockchain deals worth only $1.2 billion.

Q4 numbers

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Dropping off a cliff in Q4 2022.

The report further breaks down M&A, financing, and public market deal activity for Q4’22. As the broader markets continue to be bearish, gaming was also impacted, but M&A and financing volume remained largely stable.

With 76 announced deals in 4Q, M&A activity remained largely in line with the average for the year and grew compared to Q4’21 (69 deals). However, larger value deals dropped sharply with less than $1 billion of total disclosed deal value in Q4’22.

Many of the top buyers were active including Meta (three VR gaming studios), Keyword Studios (Helpshift, Labcom), Embracer (VR Distribution), Take-Two/Zynga (Popcore), Moon Active (Zen Match), Playstudios (Brainium), Netflix (Spry Fox), Krafton (Neon Giant) and Animoca (Pixelynx).

With 212 deals, the private financing market has remained steady compared to 233 deals in Q3 and 202 deals in Q4’21. However, investors remained cautious, there were only a few large financings (Fenix Games: $150 million, Home Games: $100 million), and the total money raised declined to $1.2 billion from $2.5 billion in Q3’22.

The report wasn’t quite as pessimistic as one by Konvoy Ventures last week, but the firms use different methodologies for counting deals, as Konvoy focused on VC fundings only, not strategic investor deals. Directionally, though, both firms agree that Q4 funding amounts fell a lot from Q3 to Q4.

“For sure, there was a significant drop from Q3 in Q4,” Metzger said.

In Q4, Blockchain companies raised over $450 million in 71 private financing deals, despite the ongoing challenges in the crypto market. In public markets, Infinite Reality announced a SPAC deal with Newbury Street Acquisition Company to go public at a $1.85 billion valuation.

Other highlights

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Fundings were weak in Q4 2022.

The report also provides an outlook for global gaming deal activity for 2023.

Continuing last year’s trend, 2023 will be another year of strong consolidation, diversification and investments in the gaming industry. Major strategic investors will continue to be acquisitive. Top buyers will likely include Embracer, Sony, Tencent, Microsoft and Take-Two. Also, Drake Star expects to see several major M&A / financing deals from Savvy Gaming, as PIF ear-marked $38 billion for gaming deals.

Gaming AI and tools, as well as AR / VR, will be among the hot segments for both M&A and financings.

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Game financings in 2022.

Gaming / blockchain VCs raised over $13 billion in 2022 and Drake Star expects to see healthy private placement activity this year as VCs look to put the funds they raised to work. However, as investors are increasingly cautious due to macroeconomic factors, valuations for financing rounds will continue to come down.

Drake Star expects several highly successful games to be launched in 2023. It also expects the first wave of consolidation in the crypto gaming space this year.

Private equity firms are attracted by the current valuations of listed gaming companies, and Drake Star expects several gaming companies to be taken private.

The 2023 outlook

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Top VCs of 2023.

For 2023, Metzger said, “We continue a strong consolidation, diversification and investment activity, but just at a smaller scale compared to 2022. Also, if you look at the M&A deal volume, it’s still pretty steady with more smaller deals.”

Metzger said that a lot of companies are looking into new strategies to respond to the weakness of Q4, and some of the companies will become more active again.

“The whole market for change depends on how this year is going to look, with a recession or not,” Metzger said. “How severe would it be? We are hopeful that in the second half of 2023, we will see a recovery of the public market. That’s when the IPO and SPAC window would open up again.”

Hot sectors for M&A and financings could include gaming AI, tools and AR and VR, Metzger said.

Originally appeared on: TheSpuzz