UK video games firms targeted as M&A activity surges to almost £2 billion

Mergers and acquisitions involving UK video game makers hit £1.9 billion last year, a 63 per cent surge on 2020, with further deals in the pipeline, figures today reveal.

A total of 14 takeovers of UK video games makers took place in 2021, compared to nine in 2020 and just six in 2019, according to the latest research from accountancy and business advisory firm BDO.

It noted that acquisition activity had been boosted by growth in the industry since the start of the pandemic. Lockdowns led to growth in gaming as a social activity, expanding it to new demographics and widening its consumer base, BDO added.

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The “race for content” among technology giants and major games makers has triggered a string of M&A deals in recent weeks, headlined by Microsoft’s bumper acquisition of Call of Duty maker Activision Blizzard and Grand Theft Auto maker Take Two Interactive’s purchase of Zynga, creator of Farmville and Words With Friends.

Video gaming has become a popular social activity in recent years.
Video gaming has become a popular social activity in recent years.
Video gaming has become a popular social activity in recent years.

There is an expectation that video games companies will play an important role in the building of the “metaverse” over the coming years, BDO added.

The firm said video game developers 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 increase in use of subscription models and microtransactions in gaming is also said to have drawn the eye of potential acquirers.

Tony Spillett, head of the technology and media industry group at BDO, said: “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 said private equity funds have 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 believes that there are still “plenty of viable acquisition opportunities” in the sector, with many video games companies still owner operated.

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Another reason for the growth of the UK sector is the impact of the video game tax relief.

Spillett added: “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 UK 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.”

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