Our friends at Digi Capital have created a report on the upwards trend of investment in the Gaming sector, which we see as further evidence of the thriving tech market.

5 “Billion Dollar” deals have driven the gaming sector to double the whole of 2013’s investment statistics purely in Q3 2014. Without these 5 deals, games acquisitions are running at similar levels to the previous record year in 2013. This shows the growing momentum and growth in the gaming sector, with the “red letter” deals adding to an already thriving sector.

The Forsyth Group is seeing significant demand in this sector and has made CEO, VP and NED  placements in the games sector for companies like www.joybits.org, www.connect2media.com and www.funcom.com.

Data Courtesy of Tim Merel from Digi-Capital.

5 “billion dollar” deals

The biggest deals of the year so far:

1. Microsoft/Mojang ($2.5B at 8x revenue and 20x profit): a long term strategic investment to nurture the Minecraft community for Microsoft’s future cloud, mobile, virtual reality and wearables platforms (see more analysis).
2. Facebook/Oculus ($2B at reported 87x revenue): a long term strategic investment in the potential of virtual reality as a growth platform.
3. Giant Interactive take private ($1.6B at 8x revenue and 12x operating profit): Giant’s Chairman and financial backers take advantage of the current phase in the investment cycle, betting Giant is more valuable as a private company.
4. Amazon/Twitch ($970M at reported double digit revenue multiple): Amazon accelerates both its video and games initiatives, while also scoring a competitive win.
5. Zhongji/FunPlus games assets ($960M): Chinese industrial conglomerate buys its way into the future, providing the remaining FunPlus team with financial firepower to reinvest in mobile.

 

American and Chinese buyers dominate

Consolidation firepower has shifted dramatically during 2014, with an even split in the top 10 games acquisitions between US (5) and Chinese (5) acquirers. This rebalancing looks very different to 2013 when 9 of the top 10 were by Chinese and Japanese acquirers, up from 8 out of 10 from Asia in 2012. The companies being bought come from all over the world (US, Europe, China, Japan, South Korea), so entrepreneurs and investors wanting a good exit need relationships across America and Asia. Europe has been more of a sellers’ than a buyers’ market in recent years.

Games investment returns >11x to Q3 2014

Returns to games investors from exits are >11x the amount invested to Q3 2014, comparing acquisitions to investments so far this year (excluding IPOs, which push returns even higher). While there is a time lag between investments and exits, comparing money flows by year helps track where the market is going.

Games investment returns hovered around 3x to 4x until 2007, plunging to 1x to 2x for 4 years after the financial crisis in 2008. As mobile disruption accelerated in 2012 just 5 years after the iPhone launched, games investment returns rebounded to 5x to 6x, before skyrocketing to >11x this year. Large deals always impact market returns, but there is a consistent upward trend even without them.