Cerca Trova's Gaming & Interactive Entertainment Update summarizes recent M&A and investment activity in the games space and provides some color and commentary behind the deals.
Cerca Trova Advisors

Gaming & Interactive Entertainment Update

Monthly Digest of M&A and Investment Activity, GDC Edition

Cerca Trova Advisors would like to welcome all the out of town guests who are flying in to San Francisco for GDC this year. We hope to provide some interesting food for thought in this GDC edition of our newsletter before schedules become cluttered with seminars, meetings, and most importantly, party invitations! We wish everyone here and around the world a successful GDC week and hope that the fruitful discussions this week will lead to more content for our future M&A and investment newsletters!

On the M&A front, 2012 started off with a bang, with gambling giant International Game Technology (IGT) stepping up with a table-pounding $500 million acquisition of Double Down Interactive. Sticking with the Vegas theme, other recent games M&A transactions smack of the cards dealt from a great blackjack shuffle: there’s something for everybody. 6Waves Lolapps picked up Escalation Studios, its first mobile studio; Peak Games strengthened its position in the Middle East North Africa region with the acquisition of Kammelna Games; and Kabam bought Fearless Studios to complete only the second acquisition in its corporate history.

On the investment side, this month represents an interesting milestone in games investment history, with more than 65,000 “games investors” putting money into San Francisco-based Double Fine Productions through donation site Kickstarter.com. In addition to Double Fine’s excellent “fan-raising” results, established players Digital Chocolate, TrialPay, and Trion World Networks all raised capital to expand and strengthen their businesses. 

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The Cerca Trova Advisors team

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Games M&A Activity

On February 21, Turkish social games developer Peak Games announced that they were acquiring Saudi Arabian developer Kammelna Games for an undisclosed sum. Peak Games, which has offices in Amman, Ankara, Barcelona, Berlin, and Istanbul, now boasts 20 million monthly active users and is growing strong in the Middle East North Africa (MENA) region. 

On February 16, San Francisco-based studio Linden Lab, best known for the virtual world Second Life, announced the acquisition of “interactive fiction” developer LittleTextPeople. The details of the deal were not disclosed. Linden Lab’s CEO, Rod Humble, said that this was an acqui-hire, stating that, “LittleTextPeople brings a depth and breadth of AI and interactive story development expertise that is a great fit for Linden Lab as we launch multiple new products.” 

On January 27, hardcore social games developer Kabam announced the acquisition of Marin-based Fearless Studios for an undisclosed sum. This is only Kabam’s second acquisition since its 2010 purchase of WonderHill. The deal adds six employees to Kabam including LucasArts veteran Haden Blackman, the creator of Star Wars: The Force Unleashed.

On January 18, 6waves Lolapps announced the purchase of Dallas-based mobile developer Escalation Studios for an undisclosed sum, adding 6L’s first wholly owned mobile development studio. One of the most successful publishers on Facebook with more than 13 million monthly active users, 6waves Lolapps is hoping to recreate their success in mobile-social, and plans on employing Escalation Studios to create content for Android, iOS, and QQ platforms.

Also on January 18, Zynga disclosed that it bought three mobile games companies in the last several months. The company bought German developer Gamedoctors in December. Gamedoctors is based near Hanover and makes the game ZombieSmash. Zynga also bought San Francisco-based Page44 Studios in September. That studio created the "World of Goo" game for Apple's iOS platform. In addition, Zynga acquired HipLogic, another San Francisco-based games company, in August.

On January 16, International Game Technology (IGT) announced the purchase of Seattle-based social games developer Double Down Interactive with terms that could be worth as much as $500 million. Double Down Interactive publishes casino-style games on Facebook; should US lawmakers bow to the increasing pressure to legalize Internet gambling, this acquisition will give IGT an immediate and significant head start on capitalizing on the change in legislation.

On January 10, Rekoo announced the acquisition (completed in late 2011) of rival social games developer HappySNS for a reported $20 million. Rekoo, which publishes games for Facebook, Mixi, and Mobage, can add HappySNS’s 10 million daily active users to its total, bringing the social gaming giant to a very respectable 30 million daily active users. (Zynga, by comparison, sees approximately 55 million daily active users on Facebook.) 

On January 5, Aeria Games announced the purchase of Iigi Games for an undisclosed sum. As part of the deal, Aeria games will receive an undisclosed amount of funding from Korean-based NHN Corporation, Iigi Games’ former parent company. As part of the deal, NHN will grant Aeria Games “first right with preferential treatment to publish NHN online games worldwide outside of Asia.” The addition of the Iigi Games portal boosts Aeria Games to a total of 35 million registered users worldwide. 

On January 4, Ascend Acquisition Corp announced intention to merge with Andover Games LLC, a San Francisco-based developer of mobile games. The deal, which was completed on March 2, was valued at $2 million.

Games Investment Activity

On February 27, Game Closure announced that it raised $12 million in a first round of funding for its HTML5-based cross-platform game business. The round was led by Highland Capital Partners, with Greylock, Benchmark, General Catalyst, and Charles River Ventures also participating. Game Closure offers an HTML5 game development SDK and engine which helps game studios develop and publish games across the iOS and Android ecosystems. The Game Closure SDK enables very small teams to build production quality games in just 4-6 weeks, and it includes hooks for analytics, distribution, versioning, internationalization, and other publishing features.

On February 9, Double Fine Productions shocked many in the industry by smashing crowd-sourced fundraising records, raising over a million dollars in 24 hours via “fan-raising” on donation site Kickstarter.com. Fronted by games industry super-veterans Tim Schafer and Ron Gilbert, the “Double Fine Adventure” project has raised over $2.3 million (minus Kickstarter’s 5% cut, Amazon payment’s 3-5% cut, and pre-booked taxes against retail revenue) in crowd-sourced funding. The project still has over a week to go to obtain more donations - from fans, who are, effectively, pre-ordering the finished product, sight unseen - before funds are released to Double Fine Productions.

On February 7, online racing game company Ignite Games Technologies, announced that it received $5 million in Series C funding from a combination of existing and new private investors. This brings the total raised by the San Francisco-based start-up to $17.5 million following two rounds of funding in 2010 and 2011. Ignite recently unveiled the public beta of its racing game, Simraceway, and also debuted a specialized controller, the Simraceway S1 Steering Wheel, which it developed in conjunction with peripherals manufacturer SteelSeries. Simraceway is an online racing world that offers live, person-to-person racing, utilizing highly accurate, simulation-grade driving physics.

On February 2, German mobile gaming company Flaregames, announced a €6 million initial financing led by Accel Partners. The funding will be used to scale the company, attract additional talent, and market the company’s upcoming lineup of free-to-play games for mobile devices, which will consist of five games by the end of June 2012. Flaregames was founded in 2011 by CEO Klaas Kersting, who was previously CEO and Founder of Gameforge.

On January 31, Mountain View-based TrialPay, the maker of a transactional advertising platform, announced that it raised $40 million in new funding from investors including Greylock Partners, Visa, T. Rowe Price, DAG Ventures, DFJ Growth and QuestMark Partners. TrailPay is used by many social game developers on Facebook where players receive virtual currency in return for looking at the offers. The offers space is growing rapidly and in 2011, TrialPay ended the year with a 7X increase in transaction volume and 4X increase in traffic to the platform year-over-year.

On January 19, Trion Worlds, a leading MMO publisher and developer, announced that it completed an $85 million round of strategic growth equity financing, led by Ontario Teachers’ Pension Plan. Also participating was current Trion investor Bertelsmann Digital Media Investments (BDMI). Trion will utilize the financing to further grow its worldwide premium online games business, which includes games such as Rift, the company’s first title launched in March 2011. Players activated more than one million Rift accounts in less than four months, and its North American and European revenues surpassed $100 million in 2011. Rift has set a new industry standard for massively multiplayer online role-playing games, proving that gamers are continuing to embrace original, high-quality IPs.

On January 18, social games developer Digital Chocolate announced the close of a $5 million venture loan from NXT Capital’s Venture Finance Group. This facility will be used to finance key growth initiatives. Digital Chocolate’s newest social game, Galaxy Life, was ranked #1 by Inside Social Games among new emerging Facebook games, and is the latest game from the company’s growing Barcelona Studio, which made earlier successes Millionaire City and MMA Pro Fighter.

On January 17, Bionic Panda, an Android focused mobile gaming company, raised a seed round of funding from a group of investors including SoftTech VC, Norwest Venture Partners, Google Ventures, 500 Startups and angels Craig Sherman and Kal Vepuri. The amount of the investment round was not disclosed. Bionic Panda was founded by Charles Hudson and Mike Jimenez, who worked together at Serious Business. Serious Business was the maker of the popular game Friends for Sale, which was acquired by Zynga in February 2010. Bionic Panda recently released its first title, Aqua Pets, which has hit over 3 million downloads and is a top 100-grossing application on the Android Market. The company is working on a series of additional titles and continuing to develop its own social platform for connecting players within its network of games.

On January 4, social games studio Seismic Games announced that it raised $2 million in Series A funding, led by DFJ Frontier and media entrepreneur and venture capitalist Tom Matlack. Established in 2011, Seismic Games is founded and led by an executive team including CEO Greg Borrud, a 17-year gaming industry veteran and co-founder of Pandemic Studios, which was sold to Electronic Arts in 2007 for $860 million. The studio is looking to bring unique and immersive gameplay to the social games market with its first title set to launch in the first quarter of 2012.  

Cerca Trova Advisors

Cerca Trova is an investment banking and strategic advisory firm focused on opportunities in technology, mobile and digital media including gaming and interactive entertainment.  We provide M&A advisory, capital raising and strategy consulting services to companies at all stages of development.  Our principals are experienced M&A practitioners and industry insiders with deep domain expertise and decades of experience working with both established and growing companies and a clear understanding of the issues and challenges that they face.  Cerca Trova has offices in San Francisco, Helsinki and Beijing.  www.cercatrovaadvisors.com
Copyright © 2012 Cerca Trova Advisors LLC, All rights reserved. This document is for reference purposes only and Cerca Trova Advisors assumes no liability for the use of the content contained herein for any purpose beyond the reading pleasure of the intended recipient.