Neil Patel

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M&A in the gaming industry is accelerating activities to grab the best opportunities in one of the fastest-growing segments. The past decade has seen phenomenal growth in this industry, with the number of players worldwide also increasing rapidly.

Since it is a digital segment, the gaming industry has gained significant popularity. Electronic games are attracting customers not restricted by geographical or political border constraints.

The year 2022 saw a one-time phenomenal surge in the deal values, and experts estimate sustained interest in M&A.

Statistics Indicate the Potential for Massive Growth in the Sector

Mergers and acquisitions in the gaming sector focused mainly on expanding the customer base and acquiring Intellectual Property (IP). However, smaller deals were more about acquiring technologies and Web3 solutions that use blockchain technology as their basis.

The exciting factor is that users communally own and control the technology, unlike conventional internet applications. Blockchain technology is the next big thing, and corporations are recognizing its mind-boggling potential for spurring the gaming sector.

In turn, the growth is leading to more M&A in the gaming industry.

Statistical projections indicate that gaming is a significant aspect of the broader entertainment and media sector. Research shows that the vertical had a market size of $245.10B in 2023. It is likely to grow at a CAGR of 8.94% between 2023 and 2028.

And it is estimated to touch $376.08B.

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    The Number of Users is Growing Exponentially

    This phenomenal growth is in response to the exceptional demand from global sources. Statistics show that the number of users in 2022 was around 3.1 billion; by 2025, the count will be 3.6 billion.

    Interestingly, the Asian market share dominates the sector as the highest in the world, with an estimated 1.5 billion gamers.

    The Indian gaming industry will potentially grow at a CAGR of 28% to 30% from 2022 to 2025. Translate that into value, and it works out from $2.8B in 2022 to $5B in 2025. If you count the number of gamers, they have grown from 410 million in 2022 to 450 million in 2023.

    Experts estimate that this number could possibly hit 500 million before the year 2025 rolls around. When you talk about gamers, that’s the number of users playing games on different devices. These may include mobile phones, gaming devices, personal computers, and other gadgets.

    While 55% of the number are gamers, at least 52% are active subscribers. They have signed up for and subscribed to a minimum of one gaming service.

    Translated into actual data, that works out to 442.5 million users engaged in live streaming activities. And that includes around 160 million eSports fans.

    The incredible demand for games and gaming devices has also encouraged the growth of startups in the eSports segment. In the US alone, the number of eSports viewers was 29.8 million in 2022 and will potentially reach 34.8 million by 2026.

    Let’s focus on the Asia-Pacific markets, specifically countries like India, China, Japan, Australia, and Korea. The outlook is pretty much the same, with the expected CAGR of 19.35% CAGR between the years 2023 and 2028.

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    Top Global Brands Are Sponsoring the Gaming Industry

    Interestingly, the gaming vertical is also attracting the interest of reputable sporting goods companies and top brands. With so much funding getting siphoned into the sector, the unprecedented growth and M&A in the gaming industry are not surprising.

    Some of the best-known labels include KFC, Harbin Brewery, and Red Bull from the F&B or food and beverages sector. You also have Puma and Adidas from the athletic and sportswear segment and ExxonMobil in the oil & gas industry.

    If you focus on the computer hardware segment, Intel and Lenovo are the top sponsors. Razer and Logitech from the gaming hardware and peripherals vertical are also targeting eSports providers for their marketing strategies.

    Among the mobile phone and tablet brands, Asus, OnePlus, OPPO, and Samsung are joining the list of sponsors. Interestingly, automotive manufacturers like BMW and Mercedes-Benz are also joining the fray and are now running promotional ad campaigns.

    Understanding the Gaming Sector

    Gaming as an activity encompasses playing electronic games using devices like consoles, tablets, computers, smartphones, and a variety of other devices.

    Advancements in technology to deliver high-speed 5G internet, higher bandwidth, and cutting-edge digitization have spurred the development of gaming.

    The COVID-19 pandemic and stay-at-home orders boosted the gaming industry because of the rapid growth of user numbers. And, of course, the number of games being downloaded.

    This demand, in turn, led to mushrooming technological advancements, new software companies, and internet capabilities.

    Post-pandemic, the growth sustains as younger players continue their engagement with games. Gaming is more than just entertainment; it’s also about competing and socializing on sites and platforms offering multiplayer games.

    Players not only invest in the newest games available, but they are also open to purchasing expensive in-game virtual merchandise. The interest in subscribing to content and game services has spawned an entire ecosystem catering to the next-gen demand.

    Data suggests that revenues have hit $200B in 2022 alone. Gaming companies are revamping their business models to streamline console supply chains and release a mind-boggling array of new games. And that has, in turn, spurred M&A in the gaming industry.

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    Expert Anticipate Mega M&A in the Gaming Industry

    Competition is heating up in the gaming sector, with companies vying to capture the burgeoning audience, IP, and IA. In addition to intangible assets, they are also looking at acquihires in a bid to snag the top-notch talent creating the assets.

    Smaller startups with innovative ideas for providing components and services are an essential part of the ecosystem. Media and entertainment giants are setting out to acquire these startups to attract younger generations. Or purchase their shares to gain a controlling advantage.

    To capture the right market share, they must expand their product and game portfolio. Their offering must include streaming, movies, and other related IPs.

    Web3 metaverse is another sphere that is attracting acquirer interest. Innovative and emerging blockchain technology and qualified skill sets creating the assets are in high demand.

    At the same time, larger hyperscale platform companies are grabbing most of the opportunities for M&A in the gaming industry. They have access to larger amounts of funding that allows them to continue investing despite rising interest rates.

    Although the CAGR for the gaming industry is promising, experts are concerned about the recession’s impact. Uncertainty because of macroeconomic factors and lowering customer purchasing power are also potential downsides.

    Post-pandemic, gamers are renewing their interest in live, in-person entertainment, which could lead to lower game sales and in-game purchases. Chances are also that service subscriptions will take a hit.

    Even so, acquisitions could continue because game company valuations are dropping, which makes their pricing cheaper than ever before. Large equity declines across the stock market are resulting in lower overall deal values across the board.

    Cross-Border M&A Opportunities

    Experts are anticipating a larger number of deals across borders that will eliminate barriers between Western and Asian markets. Several acquirers from the European Union and the US bought out Asian gaming companies to access their customer base. Their technology and Intellectual Property were also the key drivers behind the acquisitions.

    On the flip side, several leaders in the gaming industry from Asian countries like South Korea, Japan, and China have entered into strategic alliances. Their targets have been gaming assets and firms in Western locations.

    M&A in the gaming industry has global connotations, and assets coming up for sale have takers from buyers across the world.

    Factors Influencing M&A in the Gaming Sector

    Several factors drive M&A in the gaming industry, primarily since it is a dynamic sector poised for rapid growth. For instance:

    Acquiring New Expertise & Talent

    Unprecedented technological advancements have spurred the development of new platforms for blockchain, the metaverse, and cloud gaming. The big guns are now focusing on acquiring new expertise and assets to remain competitive in unexplored markets.

    This objective is triggering their interest in M&A.

    Aside from core game development and maintenance activities, the sector is expanding to ancillary activities. These may include procedural generation or computerized data collection. Using this data, developers can create content for animated movies and video games.

    The data is also helpful when designing 3D objects, animations, landscapes, and character designs, along with non-player character dialogue. Conducting an in-depth analysis of audience responses and designing ads or ad tech are other technologies companies must acquire.

    Shortage of Top-Notch Skill Sets

    As the demand for new gaming channels, merchandise, and content opens up, the demand for skilled talent is also rising. Companies need to hire artists, trained game developers, 3D artists, game artists, audio engineers, level designers, and graphic designing experts.

    The severe shortage of this talent has resulted in acquirers opting for the next best thing–acquihires. They may look to acquire small startups for the sole purpose of acquiring their talent and offering premium salaries.

    Keeping Pace with the Competition

    The incredible growth of the gaming industry has also led to cutthroat competition. Smaller firms may find it harder to compete with better-established players who have more cash and resources to invest.

    Having achieved adequate valuation, founders may be ready to exit and develop better concepts.

    Regardless of the sector and where your company is at, founders should know how to identify their competition. If you’re looking to exit the company, you should know how to show your competitor landscape in the pitch deck. Watch this video to know more about how its done.

    Need for Content for Subscription-Based Services

    The gaming vertical has a robust subscription model with a high demand for content to offer quality services. Owning content is a smart and sustainable business approach.

    This is why big companies like Microsoft and EA are now entering into studio acquisitions for in-house content designers.

    Capital-Intensive Industry

    Developing AAA games has now become a capital-intensive activity requiring significant investments of hundreds of millions of dollars. Since only the larger companies have that kind of funding, the smaller firms may find it hard to stay competitive. The next option is to accept an offer for a buyout.

    Overcoming Agility Challenges

    Larger companies tend to have business models and operational strategies that make agility challenging. Entering new markets and developing a presence can only be done by acquiring new companies that have made their mark.

    In turn, the target company gets the advantage of higher amounts of funding and the backing of a top brand.

    In Summary

    The growth in the gaming industry is exponential, and strategic alliances and collaborations can play a significant role. Mergers can bring together complementary companies to achieve the core benefits of such partnerships.

    Economies of scale, synergies, accessing a broader customer base, and pooling talent and resources are only the starting point. M&A can boost the development of a dynamic market and thriving gaming ecosystem while unlocking the potential for further growth.

    Gaming is now not just about playing games and purchasing virtual, in-play merchandise. The sector includes eSports, subscription-based services, hyper-scale platforms, major entertainment providers, and so much more.

    Understanding user psychology to design more advanced games, ads, and promotional campaigns is also gaining traction. Several ancillary services are being developed to enhance the landscape.

    Experts are zeroing in on concerns like the recession and rising interest rates that can influence M&A. The possibility of customer interest moving to live, in-person entertainment is also a real threat.

    Despite these challenges, not to mention weaker purchasing power, the gaming industry’s CAGR is promising. The prospects for M&A in the gaming industry are as bright as ever, with more stress on eSports as it gains traction.

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    Neil Patel

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