UK video games targeted in M&A deals worth £1.9bn

Buyers target revenue streams of successful games franchises amid ‘race for content’
Flow of major video game deals continues with Microsoft’s $69bn Activision acquisition

M&A deals for UK video game makers hit £1.9 billion in 2021, a 63% increase on the £1.2 billion in 2020, according to research from accountancy and business advisory firm BDO.

A total of 14 takeovers of UK video games makers took place in 2021, compared to nine in 2020 and just six in 2019.

Acquisition activity has been boosted by growth in the industry since the start of the pandemic. Lockdown boosted gaming as a social activity, expanding gaming to new demographics and widening its consumer base.

The ‘race for content’ among tech giants and major games makers has triggered a string of major M&A deals in recent weeks, headlined by Microsoft’s acquisition of Call of Duty maker Activision Blizzard for $69bn and Grand Theft Auto maker Take Two Interactive’s purchase of Zynga, creator of Farmville and Words With Friends. There is an expectation that video games companies will play an important role in the building of the metaverse over the coming years.

BDO says that video game companies have improved their ability to produce predictable long-term revenues as once a hit game has been released, it can quickly be turned into a series. With an injection of capital and resources, a game series can then be marketed for an international audience. The brand can be further extended through merchandising, which also provides further revenue streams.

The increase in use of subscription models and microtransactions in gaming has also drawn the eye of potential acquirers. Buyers see these revenue streams as a healthy diversification from the traditional ‘yearly release’ model.

The UK has long been regarded as a centre of excellence for video game development. Notable 2021 acquisitions in the UK included the US gaming giant EA’s purchasing of Playdemic, maker of Golf Clash, for £1bn, and Chinese entertainment conglomerate Tencent’s acquisition of Sumo Group, designer of the Sonic Racing, LittleBigPlanet and Crackdown franchises, for £850m.

Tony Spillett, head of the technology & media industry group at BDO, says: “Video games are the content that almost all media companies are looking to snap up at the moment. Regardless of the success of tech companies in building the metaverse, this trend still has some way to go.

“Many small development houses need only a little external investment in order to grow into big industry players. An innovative but small production house infused with capital and resources can rapidly turn into a high value business.”

Four UK video game companies were acquired by private equity funds in 2021, compared to none in 2020 and two in 2019. BDO says that PE funds started to look at acquisitions of video game producers as the valuations of some of them remain lower than in other parts of the tech sector. The firm says that are still plenty of viable acquisition opportunities in the sector, with many video games companies still owner operated.

Another reason for the growth of the British video game industry is the impact of the Video Game tax relief. A game certified as ‘British’ makes the production company eligible for 25% relief on up to 80% of the total core development expenditure. This has made the UK an attractive location for developers and has boosted home-grown businesses.

Adds Tony Spillett: “The tax relief the industry gets has played an important role in growing an industry where Britain can legitimately claim to be among the world leaders. It would be great to see the Government listen to the video game industry about how to remove some of the friction from the process of getting that relief. If it did, it could work even better than it currently does.”

ENDS

Note to editors

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high-growth businesses that fuel the economy.

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed.

BDO LLP

BDO LLP operates in 18 offices across the UK, employing 6,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

BDO’s global network

The BDO global network provides business advisory services in 167 countries, with 97,000 people working out of 1,728 offices worldwide. It has revenues of $11.8bn.

Contacts

Richard Crossan
Mattison Public Relations
Richard.crossan@mattison.co.uk
020 7654 3636

BDO press office:
020 7893 3000
media@bdo.co.uk