Quantum Tech Partners: Gaming M&A isn’t taking a summer break

The gaming industry has seen gigantic acquisitions in the last year. With giant companies buying other giant companies, mergers galore, and Web3 drawing huge investments, it can be hard to make sense of the market. That’s where Quantum Tech Partners comes in handy.

The M&A advisory firm has released a new quarterly report about M&A in the gaming space. The firm’s latest report is interesting and can help clarify some of what’s going on in games today. I sat down with Alina Soltys, founder and partner with Quantum Tech, via a Zoom call to discuss their latest report and what’s happening today in the business of games.

The following is an edited transcript of our discussion.

GamesBeat: Can you tell us a bit about Quantum Tech Partners for folks who are unfamiliar?

Alina Soltys: My firm, Quantum Tech Partners, works with gaming companies on M&A [mergers and acquisitions] and fundraising strategies. What that means is we’re working with founders that are looking to scale up their businesses. So, raising funds and representing founders in conversations that they’re having with strategic partners for acquisition. What we do is release this quarterly look at the gaming universe and what’s happening specifically in M&A and fundraising. When I first started doing these reports, more than 10 years ago, nobody cared about gaming because everybody just followed tech M&A more broadly. It’s still a messy, murky kind of market. There are many different sources we look at to assure data integrity. We track activity as it’s announced for M&A transactions, and then also for fundraising. It has now expanded to include Web3 gaming projects.

We were first on reporting esports as a subsegment. That’s kind of where we find this report to be helpful — providing some understanding on what’s the deal with these trends while looking at some of the specific deals. With our background of working with companies, we want to help people understand that yeah, this is a big deal, but what does it really mean?

GamesBeat: To that end, the last year has been pretty crazy. I don’t think anyone would have expected a deal as big as Microsoft acquiring Activision Blizzard. How do you see the market responding to deals like that?

Soltys: Consolidation has been a word used for many quarters now. I think it’s come to a place where there is real FOMO (fear of missing out) on these big market moves. And I think it’s a function of a couple of good years of growth in gaming, especially outsized growth that’s created these large companies. Now they have the opportunity to make some very strategic plays and change up the landscape. And so that’s what we’re seeing happen with a lot of these guys where either it’s currently in progress and not announced, or it’s starting to come through.

Activision, if you look at it from a deal perspective, is not only is it the largest gaming deal, it’s actually the largest technology deal in the entire segment. It’s massive. And I think these types of transactions will continue to happen in the $5 to $20 billion range where there’s still a lot of room for companies to merge as well as slightly larger companies looking to take slightly smaller than companies and combine into new entities. There’s a couple of thoughts on why that’s happening. I’m happy to share a little of what we’re seeing.

Q2 2022 M&A transactions.

GamesBeat: Absolutely.

Soltys: First of all, there’s a big industry shift in what consumers enjoy digitally. And so that’s creating opportunities for gaming companies who have massive viewership and hours spent in gaming to also expand into other entertainment avenues. What Amazon is doing — rounding up both the movie studio side, as well as gaming, is interesting. We see some Korean companies that are doing the same thing. Nexon, for example, purchases [a part of a] studio out of L.A. on the movie side. They’re creating these large entertainment groups. So one avenue is consumers driving the trend towards gaming and suddenly, everywhere else they’re spending time becomes an interesting avenue. In the right case, it makes sense to partner up and have a combined offering.

We also see, as a second big trend, technology companies that have established footholds in gaming, just continuing to invest more and more into them. And they started off with a tech approach, right? So like PlayFab and Microsoft helps game developers build better products. Google for a long time has had a very friendly Android platform and operating group with Google Play. Apple, same thing, announced arcade and is looking to work with developers. And they’re also now moving into the IP side of things which is interesting because oftentimes you think about big tech players as platforms rather than making a stake, but it makes a lot of sense now to have that content. Sony also, of course, is going out and doing that. So there’s some big movements there that are causing the consolidation. And the advertising privacy changes are also dramatically shifting the mobile market. That’s also creating some opportunities.

Joffre Capital and MGM were responsible for over half of the M&A deals for Q2.

GamesBeat: When it comes to acquisitions I think of two names: Tencent and Embracer Group. Do you see them continuing their constant acquisitions?

Soltys: I think they’ve been really busy. I would assume there is going to be some period of time for them to digest their acquisitions and make sure that they’re integrated properly. It’s a lot easier to make a transaction happen than it is to make it successful in the long run. So, you need to come into those from the very beginning, really building strong partnership alignment to make sure that is actually successful in the long run. There is work to be done on that. And I think Embracer has been extremely busy. They have a distributed model for studios, so it allows for them to be that busy, but there’s still need for integration at the end of the day in some capacities.

I think that’s going to be a factor for a short period of time here. I don’t know if that means it’s going to be more of a slowdown for some of them as they’re doing that, or if they just are more picky with some of their acquisitions and making sure that they really line up. They’re serial acquirers, at the end of the day, so that means that they’re doing lots of transactions every year, and that’s a strong part of their growth story. And they’ve [Embracer Group] paved the way for a number of other Nordic companies who are taking a similar approach of growth through acquisitions. Maybe not as aggressively, of course, but it’s created another wave of middle market, or slightly smaller public companies, that are also approaching growth the same way, which is both organically as well as with a heavy hand of inorganic.

GamesBeat: Some of the biggest deals I’ve seen recently have been coming out of the Middle East. Specifically with Savvy and Saudi Arabia.

Soltys: I’m glad you brought up Savvy because we’ve been watching the MENA[Middle East/North Africa] region quite closely. If you look at the growth, they’re the fastest growing gaming region right now. And it makes sense as there’s a large, young population there. Historically they’ve not had as much attention as some of the other regions so there’s a lot of pent-up demand. It makes a lot of sense for gaming companies to localize and bring quality product there. There’s a lot of fans and a lot of gamers and Savvy is tapping into the support from their prince and from the PIF [Public Investment Fund] to help build up some more gaming ownership there.

They’ve been quite active in the gaming space before then, too. Those organizations have massive gaming holdings. I think that’s the beginning for them. They’ve made some splashes with the ESL acquisition and a few others worth over a billion dollars. So that’s exciting to see. And you know, if we flip over to Asia, there is a massive gaming community there. Especially in Southeast Asia there’s some very interesting new studios coming out. Also groups like Garena that are bringing products to Latin America and to different parts of Southeast Asia. I think India is also a very interesting place where there’s a lot of growth and similarity to the middle east — a large gaming community. They enjoy playing games. It’s a different type of approach from a business model perspective. There’s groups like Nazara that are figuring it out and bringing some really great products out and also driving some acquisitions in their markets to bring more content to their audience.

GamesBeat: As we all know, the last year has seen a lot of geopolitical unrest. Does that have an impact on M&A?

Soltys: The two biggest factors today is investment being a lot harder to, or not possible in some cases, due to geopolitical issues. So that’s a factor. There is a really great Central and Eastern European gaming ecosystem. And I’ve gotten to know, professionally, a lot of game studios that are coming up in Ukraine, which is great to see, but that’s going to have a very real impact. The second area that does have some constraints at this point is China, right? It’s very hard to move capital and lead investments as a Chinese firm. There’s certainly different avenues and subsidiaries that sometimes get used, but that has impacted some of the spend coming out of there in recent years versus seven years ago when all you heard was all the different deals coming out of China.

Web3 has taken the venture capital world by storm.

GamesBeat: How is Q3 shaping up for this year?

Soltys: Yeah, so quarter three is the summer months. We expect there is going to be some impact from summer. There usually is. But if you know the data, it’s ultimately affected by the mega transactions at the end of the day. We like to report on the number of transactions, because I think that’s a healthier way to see the activity level, but you know, when you have a massive deal like Activision it sways all the data. That leads me to think that we’re still seeing a lot of activity in the gaming space. And in fundraising, especially since fundraising for Q2 continued to increase quite nicely as, as you see in the data.

About half of the transactions, the value, for this year in fundraising is due to Web3. So that’s quite notable. What we’re seeing there is a lot more blending of gaming being the cornerstone of Web3 taking off with consumers. A whole new host of investors. I’ve lost count of all the crypto VCs out there. I would venture to guess that there’s probably between a hundred to two hundred qualified crypto VCs out there. And it’s amazing because they come into these deals as groups and are putting a lot of capital to work and a lot of experimentation. That’s happening because it’s so early. That part of the market continues to be very strong. And with the right teams, there is a lot of interest still happening to drive that investment and drive those products to come to market.

GamesBeat: Over the last couple of years, Bitcoin has been a big topic and draw for investment. Do you foresee any slowdown in that now that Bitcoin is currently weak?

Soltys: Of course portfolios are smaller because of the price changes, but the thing we’re forgetting is the incredible run up until then has created very nice pockets of cash for these investors to play with and invest. So yes, if you’re buying at the top of the market, that’s unfortunate right now with where it’s at, but a lot of these investors have been in these projects and in crypto for a number of years. They’ve enjoyed those gains. And that’s what we’re seeing fuel a lot of a lot of the investments because coins and different tokens are an interesting and huge kind of innovation on its own, but it needs to be applied against something to really bring value at a societal level. They see gaming as that first step. The crypto investors are a lot more aggressive than the gaming investors.

$3 billion in VC funding for Q2 gaming.

GamesBeat: What kind of insights do you have about the industry going forward?

Soltys: If we look at two things, I would add just for us to pay attention to, the public companies that we track, there’s about 20 of them in the index, have over $112 billion in cash as of the last quarter. That’s a lot of capital that can be put into both internal projects and growth as well as external. That’s a good thing to keep in mind. No matter what the market situation may be or some of the economic headwinds we’re facing that’s a very healthy place to be in the gaming space.

The second thing I would look at, as it relates to capital, is how much money was raised by venture capitalists. I started looking at some of these announcements and came to the conclusion that we need to distinguish between ‘gaming only’ versus ‘gaming as a big function’ of where the venture capital groups are facing and investing into for a couple of reasons. Number one, I want to make sure that we’re looking at it right and not overstating things. But number two, a lot of these groups who used to have blended strategies are specifically calling out gaming as a course industry that they’re focusing on. That’s very interesting.

And if you look at Flow and Binance, they both announced over $1.2 billion in funding available for their platform. A lot of that is going to gaming. And then the same thing if you look at Coral Tree Partners, their background was in consumer internet and gaming in the past and gaming is one of the key areas that they’re going to be focusing on. So that’s a new brand name, and they’re talking about gaming. In the pure play gaming funds, A16z made a huge splash. You guys covered that. Then we have Immutable, Konvoy and Tower 26. In Q2, those groups combined have $3 billion in new capital to deploy.

Quantum Tech Partners will be at Gamescom this coming week, so If you would like to set up a meeting to speak with the group, please visit their website here.