Train2Game News Q2 2015 Games Industry Report

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The games industry’s structure now looks a lot like it did 10 years ago, with a handful of companies dominating the top grossing charts (although different sectors and companies to back then).

While Digi-Capital’s new Games Report Q2 2015 forecasts games software revenue growing from $88 billion in 2015 to $110 billion by 2018 , that is just 8% growth per year – low by tech standards (although AR/VR could break out next year). This dynamic has had a dramatic impact on games deals so far this year.

Last year’s record $24 billion of games M&As and IPOs was always going to be tough to match. There were 5 mega-deals that took $8.1 billion, King went IPO, as well as major deals in Asia. Games investment had already narrowed to a handful of VCs and strategic investors, down 25% on the previous high in 2011.

Games deals in the first half of 2015 fell 89% compared to 2014. Investments were down 48%, M&As down 87%, with a quiet games IPO market. Those deals that are happening centered on mobile and tech, although at much lower levels than 2014. If the second half of 2015 looks like the first half, Digi-Capital projects $800 million of investments and $2 billion of M&As for the full year. The last time games deals were at this level, folks listened to Daniel Powter and James Blunt on iPods because there were no iPhones – it was 2006.

Deal making is a game of two halves. When times are good for entrepreneurs and investors, they are hard for corporate acquirers. The go-go years of games deals between 2011 and 2014 were exceedingly kind to sellers, but now the buyers have smiles on their faces at the end of valuation negotiations. For games market leaders with strong IPs, cashflows and balance sheets, it doesn’t get much better than this.

However supply and demand don’t always meet in the middle, which explains why deal volumes are also much lower than last year. Some games companies decided to hold off on an exit when times were good, so are now sitting tight to see what happens. They might be waiting a while, as the last time the games deal market dipped (due to the global financial crisis) it took 4 years to recover. So for corporate buyers, knowing who is ready to sell and why is going to be crucial for taking advantage of market conditions.