Q2 gaming M&A deal value rises to $6.2B thanks to Scopely, Rovio | Drake Star

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According to Drake Star’s Global Gaming Market Report for Q2 2023, the gaming industry continues to trend towards early stage funding and M&A transactions. While the report details modest declines in private financing, financing activity in general still healthy according to Michael Metzger, partner at Drake Star.

“There are more gaming investors out there than ever,” Metzger said in an interview with GamesBeat. “Everybody’s still more selective than last year or the specifically the year before, but the number of funds focused on the sector is a positive indication of the opportunities.”

Early stage funding focus

Gaming Private funding - Drake Star Q2 2023
Private funding placements Q2 2023

In Q2 2023, Drake Star recorded 196 private funding deals totaling $663 million in disclosed value. The number of deals declined by 7% while disclosed deal value fell by nearly 50% compared to Q1.

Private funding is largely being funneled into early stage companies. Over 80% of Q2’s closed deals went to early stage start ups. Similarly, over 50% of disclosed funding went to these companies.

“If you look at any VC investments over the last quarters, there are much fewer late stage investments and the number of investments went down. That has to do with general uncertainty about a recession both within and outside of gaming,” Metzger said. “The bars are just higher versus when there was total boom year.”

Top VCs by deals closed - Drake Star H1 2023
Gaming VC funds with the most deals closed in H1 2023

According to Drake Star, Bitkraft Ventures led the pack among VC funds with 15 closed deals in the first half of 2023. Andreessen Horowitz, PLAY Ventures, Griffin Gaming Partners and Makers Fund rounded out the top five funds focused on early to late stage start ups.

Gaming consolidation continues via M&A

Gaming M&A transactions - Drake Star Q2 2023

While the number of M&A deals in Q2 remained relatively flat compared to the previous quarter, the disclosed deal value spiked. Savvy Games Group’s acquisition of mobile game publisher Scopely for $4.9 billion accounted for nearly 80% of the $6.2 billion quarterly total. Additionally, Sega’s Rovio acquisition accounted for another 12.5% ($776.2 million) of the quarter’s M&A deal value.

Historically, Embracer was the largest acquirer in the games industry. However, the company’s reorganization and pause on investments has left an opening for Savvy Games Group — and its $38 billion fund — to fill the void. Metzger believes that SGG will continue to acquire companies as well as making minority investments in public companies like EA and Nintendo. In particular, Drake Star suggested that “Savvy might acquire a large PC / console publisher” and anticipates Scopely using some of its new funds for further investment opportunities.

Public Markets

Public market performance in Drake Star's Q2 2023 report
Gaming index funds and ETFs compared to the S&P 500

In Q2 2023, public gaming stocks tracked with the S&P 500, which grew 15.9%. In comparison, the Drake Star Gaming Index rose 14.6% last quarter. While the VanEck Video Game Tech ETF rose by 30.1%, this is largely a result of Nvida’s historic growth.

If gaming companies continue to perform in line with the market, Drake Star believes that more opportunities for IPOs will open up in Q4 or Q1 of 2024. This will be particularly helpful for later stage start ups that are closing fewer funding rounds today.

At the same time, Drake Star reports that there is increasing interest from private equity firms to acquire publicly traded gaming companies. It points to mobile game developer Playtika as a prime candidate.

Early signs from Q3 are encouraging. Microsoft surviving the FTC’s challenge to its acquisition of Activision Blizzard will have ripple effects across the industry. “I think this deal closing is positive for all the gaming stocks. It just reduced uncertainty,” Metzger said.

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