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Gaming

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Key Themes in the Gaming Industry

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The Gaming Paradigm Shift

Gaming’s shift to online continues, driven by the increasing number of connected devices and distribution platforms, as well as the rising utilization of virtual goods

Today’s leaders employ powerful game mechanics while leveraging ancillary monetization opportunities to create highly profitable business models

Users Can Trump Revenue

Recent notable gaming transactions have been driven by user bases in addition to revenue, and some have been solely user-driven

The Overlooked Importance of

Casual

With their mass market appeal, casual games have enabled new gaming demographics and represented some of the highest value transactions

It’s All About the Whales

Games aimed to monetize through “Whale” spending are the most valuable in the industry

Free-To-Play Frustration?

With recent social gaming success stories exhibiting metrics-led design and sometimes overt monetization mechanisms, we ask the question: “Are gamers getting frustrated with Free-to-Play (“F2P”)?”

Cross-Platform “Games-as-a-

Service”

The popularity of persistent worlds coupled with the proliferation of mobile gaming platforms will increase the need for games to be delivered as a service and accessible anywhere

Real Money Gambling and Social Casino

Online Real Money Gambling (“RMG”) represents a significant “call option” for casino operators and social game developers alike

Casino operators and social game developers represent two completely different skillsets – this dichotomy will be a key M&A driver in the mid and long term

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Macro Trends in Gaming

Few players have been able to effectively serve both the online and mobile markets. Many that have done so successfully have entered the market via acquisition

Challenges for hardcore mobile

offerings are short session times, screen

size, processing power and user behavior.

Most successful “hardcore” mobile games are simple

RPGs with low graphics intensity

The majority of the hardcore online landscape does not have the capabilities or desire to move to mobile

Notable players moving towards mobile are Zynga, Kabam, Cmune, InXile and Spacetime Studios

Most mobile successes are in Casual

Console

Publisher

Developer

Hardware

Platforms

Development Analytics Monetization Payments

Online and Mobile Casual

Mobile Online

MMO/RPG/RTS “Hardcore”

Services & Tools

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0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011 2012 2013

YTD

Other Gambling Console/PC

Technology MMO/Online Social

Mobile

Key Trends in Gaming M&A

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Mobile and Social

Have Been the Focal Points of

Activity

Mobile and Social represent 48% of all gaming M&A since 2010

Mobile alone represents 25% of Gaming M&A year to date in 2013 and 28% in 2012

Console M&A has been largely absent since 2010 as recent gaming start-ups have focused on emerging gaming platforms

Strategic Deals Have

Commanded the Highest Multiples

2010 and 2011 both saw revenue multiples of 10x and higher, led by the likes of Disney / Playdom, DeNA / ngmoco, and EA / Popcap

Profitability, user base, and tech platform are key value drivers

GREE’s acquisition of OpenFeint and Zynga’s acquisition of OMGPOP underscore the importance of users and platform in the context of valuation

The Buyer Universe is

Evolving

EA and Zynga have done 15% of all Gaming deals since 2010

Absent are Activision and Disney, both historically acquisitive

While GREE and DeNA have made several strategic buys in mobile, we expect Kabam, Nexon and Tencent to become more active here

With Gaming a key pillar in the digital economy, we expect Google, Microsoft, IAC, and Amazon to become increasingly active

What’s Next?

Struggling console players who have valuable IP may be low-valuation targets for EA and Activision

Mobile acqui-hires will subside as historically active acquirors (EA and Zynga) focus on in-house talent and acquired franchises

Online gambling M&A will surge as regulatory frameworks change

Over the mid and long term, as states legalize online gambling one by one, Real Money Gambling M&A will represent a growing percentage of deal volume

2013 Gaming M&A by Sector

Historical Gaming M&A by Sector (1)

(1) Data shown on a number of transactions basis since many values are undisclosed

25%

8%

25%

11%

21%

10%

Mobile Social MMO/Online

Technology Console/PC Gambling

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Acquirer/Company Details Commentary

Deal Date: July 2012

Deal Value: $380MM

Gaikai operates a content delivery network that streams videogames and related advertisements to mobile devices, computers and TVs for video game developers, consumer electronics manufacturers and telecom service providers

By combining Gaikai’s engineering talent with Sony’s extensive platform experience, Sony will provide users with robust and exciting cloud gaming experiences

Deal Date: October 2012

Deal Value: $470M

Gloops is a leading developer of mobile games for DeNA’s Mobage platform in Japan The acquisition accelerates Nexon's mobile strategy, giving the Company immediate exposure to Japan’s large and fast

growing mobile market

Deal Date: May 2012

Deal Value: $210MM

Funzio develops crime and war simulation videogames for Facebook, Google, Android and iOS users globally GREE continues to leverage the secular trend of smartphone growth to expand its global reach The acquisition will enable GREE to capitalize on the success of Funzio’s existing titles and develop new genres of global

games with Funzio’s talented team

Deal Date: July 2013

Deal Value: $112MM

Backflip designs and develops iOS and Android games With the acquisition of Backflip, Hasbro is now able to expand its brands into all forms and formats Backflip will now have access to an even stronger brand catalog, and can utilize Hasbro’s valuable IP in future titles

Deal Date: July 2013

Deal Value: $325MM

Playcrab develops mobile games for the Chinese audience Ourpalm plans to consolidate its foothold in R&D, distribution, and operations in the mobile and web game sector following

the acquisition of Playcrab

Deal Date: March 2012

Deal Value: $210MM

OMGPOP develops online and mobile games, most notably the mobile hit Draw Something, which boasted 10.8MM daily active users prior to OMGPOP’s acquisition by Zynga

Zynga can plug its existing monetization expertise into OMGPOP’s game catalogue, while simultaneously cross-promoting existing IP to OMGPOP’s vast user base

Deal Date: October 2013

Deal Value: $3,000MM

Supercell provides iOS-based free-to-play mobile games for consumers with popular titles like Clash of Clans and Hay Day SoftBank invested $1.53BN for 51% of Supercell, acquiring control of the Company at a $3BN valuation Following the transaction, Supercell will become a subsidiary of SoftBank, but will continue to operate independently Supercell will be able to leverage SoftBank’s significant strategic resources to help grow its user base

Deal Date: January 2012

Deal Value: $415MM

Double Down Interactive provides an online casino for Facebook users Leveraging IGT's global reach and best-in-class content will help accelerate Double Down's growth trajectory The acquisition launches IGT into a leadership position in social gaming and extends its global reach through new mediums

Select Gaming M&A

Playcrab

Deal Date: October 2012

Deal Value: $174M

Pokelabo develops mobile action and sports-themed videogames for iOS and Android users in Japan GREE will bolster its arsenal of first-party games for the Japanese market GREE continues to balance dominance in Japan with U.S. and Europe market growth

(2)

Source: 451 Group, Capital IQ, Company Press Releases (1) Deal Value equates to Enterprise Value unless otherwise stated (2) Includes earnout adjustments

(1)

(2)

Deal Date: January 2014

Deal Value: $527MM

NaturalMotion uses next-generation technology and tools to develop and market high quality mobile games and products With the acquisition, Zynga bolsters its mobile presence with an expansive portfolio of current and upcoming mobile games,

a strong character IP in Clumsy Ninja, with extraordinary franchise potential, and brings proprietary technology and tools that will catapult Zygna’s mobile development capabilities

(2)

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