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Even amid a softening economy, dealmaking in the videogame sector has continued at a breathless pace, setting another record for number of transactions in 2022’s first quarter thanks in part to interest in blockchain-based technology and titles, according to the Games Investment Review from game-industry consultant Digital Development Management.
“We’re having trouble coming up with new superlatives for a record-breaking quarter,” the DDM report says.
All told, DDM’s report tracked 243 investments totaling about $3.5 billion in the quarter, the most for a first quarter, and matching the record number of deals set the last quarter of 2021.
Game industry investments, mergers and IPOs have all been on a tear for the past year and a half, driven by an entertainment sector expected to cross $200 billion in global revenues soon, according to NewZoo, and further fueled by a new class of investors interested in applications of blockchain and cryptocurrency technologies in the space.
The first quarter of the year almost matched the all-time records of Q4 2021, except in initial … [+]
(Graphic courtesy of DDM)
Blockchain-based games and technology firms drove more than half the investment volume, especially for early-round investments from non-traditional game industry investors.
Mergers & Acquisitions activity was also humming along, with four transactions of more than $1 billion in value, and $7.9 billion in 84 total deals. Together, investments and M&A deals totaled $11.4 billion for the quarter.
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The $3.5 billion in disclosed deals for the quarter was only topped by 2021’s Q1, which was plumped up by Roblox’s RBLX $12.8 billion IPO, two-thirds of the quarter’s $18.7 billion total.
Nine of the 10 largest investments were in mobile, according to the report, though DDM also noticed “a healthy spring crop of new studios and many early rounds” among the quarter’s many transactions.
The biggest private investment of the quarter, however, was for $450 million from more than 25 investors backing the upcoming game from Yuga Labs, creator of the hugely successful Bored Ape Yacht Club NFTs.
Overall, deals in the blockchain sector generated $1.7 billion in private investments, 48 percent of the total. That doesn’t include such common blockchain-related iniatives as the issuance of initial coin offerings (ICOs) or public token rounds. It roughly matches the previous quarter totals for the sector, largely focused on seed rounds for various projects.
“What has been clear is that companies whose gaming projects incorporate play-to-earn mechanics, tokens and/or NFTs continue to drive investments,” the report says. “The varied nature of their deals and offerings of equity, tokens and/or NFTs have changed how gaming companies can raise investments.”
Less clear is whether there will be the same enthusiasm for blockchain gaming going forward, given the recent substantial decline in value in Bitcoin BTC and most other major cryptocurrencies, sliding alongside most of the stock market. Using blockchain-related technologies remains controversial with a notable slice of the vast game-playing audience, despite considerable enthusiasm from investors and many companies’ top executives.
Initial Public Offerings, or IPOs were down notably from the previous quarter, “in what feels similar to pre-COVID levels and is an unusual departure from recent quarters,” according to DDM. Two smaller Polish game companies went public, while several far bigger SPAC-based vehicles have yet to be deployed in the sector.
The one area of notable decline from the previous quarter came in the number of Initial Public Offerings, mirroring a broader cooling-off in that sector of the industry’s finances, especially as enthusiasm for SPAC-based IPOs has cooled dramatically from two years ago.
For all the prodigious numbers, the quarter’s totals could have been far bigger. The report focuses on Western markets and does not include the vibrant Asian games industry, though DDM has offices in Asia too. As well, the report notes, DDM’s report includes only deals that have closed in the quarter, rather than those that are announced.
That means mammoth acquisitions such as Microsoft’s MSFT proposed $69 billion acquisition of troubled top publisher Activision Blizzard ATVI , or the still-huge $12.7 billion Take Two Interactive purchase of mobile-game giant Zynga, aren’t counted in Q1, even though they were announced then.
The massive Microsoft deal could still hit a regulatory roadblock, especially now that a third Democratic member of the Federal Trade Commission has been approved by the U.S. Senate. Take-Two said in its quarterly earnings announcement Monday that it expects the “transformative” Zynga deal to close on May 23, after both companies’ shareholders vote later this week. Add those mega deals in, and the quarter would look more like a $90 billion season.
DDM also treats mergers involving Special Purpose Acquisition Companies, or SPACs, differently than some other industry observers, counting as the investment value of a deal only “what was raised in the transaction, not the company valuation afterward. This is consistent with how we track investment data, where we track the money raised in the transaction and, separately, its effect on the company’s overall enterprise value.”
