Last year was the worst games deals ice age in a decade, but the topline numbers in Digi-Capital’s new Games Report for Q1 2016 (http://www.digi-capital.com/news/2016/04/games-deals-rebound-in-q1-but-rocks-below-the-surface/ ) make it look like there has been a thaw. However, the buoyant waters of the first quarter hide rocks beneath the surface, and games deal makers should look carefully before they dive back in.
The topline figures for games investment in Q1 make it look like a recovery, with more than $500 million raised. However, that half billion dollar figure is highly concentrated with three deals taking more than half of the total. The number of games companies that successfully raised money in Q1 2016 actually dropped 40% compared to the 2015 quarterly average. Similarly, games M&A appeared to make a spectacular recovery in Q1, with over $6.2 billion dollars of exits. Again the topline figure makes this sound like a huge wave of deals, but $5.9 billion came from Activision-Blizzard completing its acquisition of King. The remaining $300 million amounted to 36% of the 2015 quarterly average. Extreme concentration and a lack of momentum characterized games deal making in Q1.
The games investment market was dominated by games tech, web games and console/PC games sectors, with the largest deals happening in Asia. It is worth noting that the previously dominant mobile games sector took under 10% of games investment in the first quarter, where it had taken around $4 of every $10 invested in games in previous years.
Games M&A in the first quarter was all about the Activision-Blizzard/King deal. Everything else was small in comparison. There could be more thawing of games exits during 2016, with larger consolidation deals and take-privates coming over the horizon to move the market forward.