Global Games Investment Review 2015 Executive Summary · • Games software revenue could top $100B...

© DIGI-CAPITAL 2015© Digi-Capital 2015www.digi-capital.com

Global Games Investment Review 2015

Executive Summary

Contact: [email protected]

Prepared exclusively for Kristien Wendt ([email protected]) Transaction: 0005054747

© DIGI-CAPITAL 2015

Executive Summary (in this free summary)

Detailed Data:

• Global games revenue forecast by sector• Games software revenue forecast by country/region• Global games M&A transaction value/volume• Games IPO market caps and volume• Games M&A transaction value/volume by sector• Games investment transaction value/volume by sector• Games 3 year investment returns• Games stock market valuation multiples• Games private M&A market valuation multiples

Growth and consolidation opportunities

Games sector reviews(economic analysis, sector dynamics, revenue forecasts, public stock market valuation comparables, public stock market performance, M&A transactions, investment transactions, sector growth and consolidation opportunities)*

• Mobile• Social/web• Massively Multiplayer Online (MMO)• Console/PC• Tech• Advertising

Contents (of Full Review)

* Where available - see detailed table of contents for individual sector contentsNote: investments <$250K included in total figures, but not listed separately

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See Detailed Table of Contents

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2Prepared exclusively for Kristien Wendt ([email protected]) Transaction: 0005054747

http://www.digi-capital.com/reports/%23global-games-investment-review#global-games-investment-review


http://www.digi-capital.com/reports/%23global-games-investment-review




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Games market consolidation accelerates as growth stabilizes

• Games industry consolidating with stable growth putting the Big Squeeze on mid-tier companies

• Games software revenue could top $100B by 2018 driven by mobile - virtual reality a potential breakout

• Asia the #1 games market to hit $45B by 2018 led by China, Japan and South Korea

• Record $15B acquisitions with investment recovering to $1.5B in 2014 as mobile dominates

• America and China the top 10 games acquirers in 2014

• China, Japan and South Korea continue to lead games IPOs

• Total $24B of games exits across M&A and IPOs in 2014 with mobile taking the lion’s share

• Private games investment 3 year exit returns >7x in 2014

• Global games public stock market index down by 14% in 2014

• Huge variation in public stock market and private games company valuations multiples

• Consolidation rules until next innovation wave accelerates market growthAll data available in Detailed Data/Charts and Full Review


http://www.digi-capital.com/reports/



Games industry consolidating with stable growth from 2015

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© Digi-Capital 2015


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Stable growth is putting the Big Squeeze on mid-tier companies


HitIP

Userscale

Complete infrastructure

High cashflow

Lowcost

Hit IPpotential

Corporates

Indies

Mid-tier

Whatnext?

Cut costs and acquire indies with

hit potential

Slim down to be nimble

like an indie

Leapfrogmid-tier

to get acquired



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2011 2012 2013 2014 2015F 2016F 2017F 2018FDedicated hardware Console software Online Mobile PC Advertising

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Games software revenue could top $100B by 2018

Global Games Sector Revenue ($B)© Digi-Capital 2015

Note: Online includes MMO, social and web games

All data available in Detailed Data/Charts and Full Review





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0% 5% 10% 15% 20% 25%

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Driven by mobile games, with virtual reality a potential breakout

Global Games Sector Revenue 2018F ($B) vs CAGR (14-18F)© Digi-Capital 2015

Revenue CAGR (2014 - 2018F)

Reve

nue

2018

F ($

B)

Mobile

Advertising

Dedicated hardware

Online

Console software

PC

Virtual Reality?






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Asia the #1 games market led by China, Japan and South Korea

Global Games Software Revenue ($B)© Digi-Capital 2015

$45B

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2011 2012 2013 2014 2015F 2016F 2017F 2018F

China Japan South Korea Asia (other) Europe North America Latin America MENA

$27B

$24B






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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Investment Value ($B) M&A Value ($B) Investment Volume M&A Volume

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Record $15B games acquisitions in 2014 as investment recovers

Global Games Investments and M&A ($B) (excluding IPOs)

Tran

sact

ion

Valu

e ($

B) Transaction Volume







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“Consolidation Crush”: 5 drivers of record acquisitions in 2014

Mobile growth

$38B mobile games 2018F revenue (vs $17B 2014) Acquirers buying into large, high growth market E.g. Microsoft/Mojang $2.5B, Tencent/C J Games

(28%) $500M

Mobile cannibalization

Mobile cannibalizing console, PC, MMO, social, web Acquirers stopping mobile insurgents from eating

their lunch E.g. Zynga/Natural Motion $527M

Legacy pivots

Disruption by new platforms pushes legacy companies to buy their way into the future

E.g. Facebook/Oculus $2B, Amazon/Twitch $1B

Market cycle

Public/private games valuations trending downwards $1.1B investment to Q3 2014 (vs $2B high in 2012) King, Game Digital, iDreamSky IPOs, with several

Chinese reverse takeovers. Chukong IPO postponed due to reported valuation concerns

Acquirers taking advantage of investment cycle phase E.g. Giant Interactive take-private $1.6B

Regional realignment

Asia $45B, Europe $27B and North America $24B revenue by 2018F changes the balance

Pan-regional acquirers leveraging strength to target domination at home and abroad

E.g. Softbank/Supercell (51%) $1.5B

$2.5B

$2B

$1B

$1.6B

$1B


Global video games acquisitions 2014 ($B)


Mobile$6.2B

MMO$3.3B

Tech$3.2B Console

$2.1B






US6

China4

America and China the top 10 games acquirers in 2014

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China6

Japan, 3

US, 12013

2014


All data available in Full Review




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China, Japan and South Korea continue to lead games IPOs

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

China Japan South Korea US UK Phillipines

Games IPOs by Country© Digi-Capital 2015






Mobile$14.8B

MMO$3.3B

Console/PC$2.7B

Tech$3.2B

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Mobile dominated $24B exit value across M&A and IPOs in 2014

Games exit value by sector 2014 (M&A and IPO)







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Mobile also dominated $1.5B games investment in 2014

Games investment value by sector 2014 (excluding IPOs)

Mobile$0.9B

Tech$0.3B

MMO$0.1B

Console/PC$0.1B

Advertising<$0.1B







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Private market games investment 3 year exit returns >7x in 2014

Private market games investment 3 year exit returns

0x

1x

2x

3x

4x

5x

6x

7x

8x

2007 2008 2009 2010 2011 2012 2013 20143 Year Investment Return Moving average


iPhone launch

Financial crisis

Mobile disruption

Social games bubble






16%

2%

-9%

-14% -14%-15%

-10%

-5%

0%

5%

10%

15%

20%

All MMO Games All Console Games All Social / WebGames

All Mobile Games All Games

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Games public stock market returns broadly negative for 2014


Games stock market sector 12 month returns to Q4 2014






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With huge variation in public stock market valuation multiples


Games stock market EV/Sales valuation ranges Q4 2014

0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x

Mobile

Social

MMO

Mean

Console






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And major variation in private games M&A valuation multiples

Games private M&A EV/Sales valuation ranges

0x 2x 4x 6x 8x 10x 12x


Mobile

Social

MMO

Console

Mean






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Consolidation rules until the next innovation wave

* Note: outlier deals may occur

Consolidation Curve by Sector

SectorLaunch

Sector Growthfor Scale

SectorConsolidation

SectorEquilibrium

SectorConsolidation

Low

High

Medium

Advertising

Mobile

Social/WebConsole/PC

ExpectedDeal

Activity*

- VC Investment - Some small M&A

- Limited M&A/ investment

- Cost focus- Alliances or spinoffs

- Growth equity investment- High volume, mid-market

strategic M&A

- Leveraged buyouts- Low volume, large scale

strategic M&A

Subscription MMO

Virtual Reality Messaging

Free-to-play MMO




About Digi-Capital

Digi-Capital advises mobile, games and digital clientsacross America, China, Japan, South Korea and Europe

Sell-side M&A Buy-side M&A Management Consulting Industry Analysis

Selected Clients

Note: includes investment banking, management consulting and industry analysis clients, as well as clients of Digi-Capital professionals while at prior firms



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Global Games Investment Review 2015 Executive Summary · • Games software revenue could top $100B...

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