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Financing for gaming companies is on an upward trend for the first quarter of 2024 according to Drake Star Partners. Both mergers and acquisitions (M&A) transactions and private placements saw modest gains in Q1 2024.
“After a long decline from over 80 deals back in Q3 2022, it seems we’re like on an uptick again with 47 M&A deals. It’s a modest uptick, but at least an uptick on the M&A side and very similar if you look at the financing side,” said Michael Metzger, managing partner, media & tech investment banking at Drake Star Partners. “There’s obviously still a lot of challenges out there, but I think both of these developments are pretty exciting.”
Gaming M&A in Q1 2024
According to the investment bank’s latest report, there were 47 M&A transactions totaling $2.4 billion in disclosed funding. The transaction volume is below 2022’s peak, but it’s a 15% jump from the average deals closed per quarter in 2023.
“A lot of companies on the M&A side have been very much inward focused over the last year with internal restructuring and layoffs. It’s not as easy to acquire other companies at the same time,” said Metzger. “I think a good amount of them feel like they’re done with the internal restructuring and are now looking at growth opportunities again.”
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Disclosed deal value remains volatile for M&A transactions with three deals accounting for 75% of the quarter’s total. CVC and Haveli Investments’ $1.1 billion acquisition of Jagex from the Carlyle Group contributed 46% of the total. Metzger expects private equity firms like CVC and Haveli to increase their activity throughout 2024.
Meanwhile, Take-Two’s $460 million acquisition of Gearbox Entertainment from Embracer Group contributed a further 19% of M&A deal value. Likewise, Beacon Interactive acquired fellow former Embracer Group studio Saber Interactive in a $247 million deal or 10% of the quarter’s total. These divestments from Embracer Group and its split into three companies was the highest profile internal restructuring in the games industry.
Private Placements
Similar to M&A, Drake Star reported a significant increase in the value private investments made in Q1 2024. However, Disney’s $1.5 billion investment in Epic Games is a major outlier among the 188 transactions. Alone, the deal accounts for 63% of the value of all private placements made in the quarter.
Like other reports, Drake Star also recorded that the vast majority of private placements were with early-stage start ups. Seven out of every eight private placements (88%) in Q1 2024 went to early-stage companies.
“Later stage is more challenging because valuation are down. Companies are trying to avoid later stage financings unless they absolutely have to. Unless they performed really well, it’s probably a down round,” said Metzger. “It’s much easier for some of those earlier stage funds to write small checks as the risk is much lower. So I would say the VC community is still very cautious, but maybe a bit more optimistic.”
Notably, blockchain gaming companies accounted for 40% of the quarter’s private placements, an outsized proportion compared to 2023. Through out last year, blockchain companies accounted for 21% of private placements. Drake Star believes this upswing mirrors the recent rally of cryptocurrency markets.
In the last 12 months, Bitkraft Ventures, A16z, Griffin Gaming Partners, Play Ventures and VGames led the VC League table for funds at any stage. Meanwhile, Sfermion, The Games Fund and Hashed VC led seed-focused funds.
Looking forward, Metzger highlighted A16z and Bitkraft’s new gaming funds as potential growth drivers. A16z’s Gaming Fund II is worth $600 million while Bitkraft III totals $275 million.
Drake Star Gaming Index
To ring in 2024, Drake Star also updated the companies included in its gaming index tracking the performance of public gaming companies. Drake Star added eight new companies while removing three companies for a total of thirty tracked companies in its equal-weighted index.
“With the previous index, it was up quite a bit, but it was heavily driven by Applovin. There are also a bunch of other gaming ETFs out there that are up because they happen to be heavy on Nvidia. It obviously has an important gaming component so its valid to include them. But at the same time, we felt like Nvidia’s stock increased because of its AI business. We felt like this wasn’t a reflection of reality at least as it relates to gaming,” said Metzger.
Alongside Applovin, DrakeStar also removed Activision Blizzard and Stillfront Group from its index. The Call of Duty and World of Warcraft publisher was delisted due to Microsoft’s $69 billion acquisition in October. Meanwhile, Stillfront Group’s board of directors voted to take the company private in April.
To round out its index, Drake Star Partners is now tracking Nintendo, Sony, DeNA, Sea, Wemade, MTG, Logitech and Corsair.
With this new mix of companies, the Drake Star gaming index is essentially flat from January 2023 through March 2024. Some companies outperformed the S&P 500, but most underperformed its 36.5% growth through this period.
Drake Star’s full Q1 2024 Global Gaming Market report with more details like top transactions is available now.
