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Mobile games account for $5bn worth of M&A activity this year

New figures have revealed that M&A activity in the booming video game sector has generated $5 billion over the course of this year to date, smashing analysts' predictions for the level of activity in the marketplace.

Digital investment bank Digi-Capital’s latest report, entitled 'Q3 2013 Update of the Global Games Investment Review,’ found that the value of games M&A activity rose by one per cent to $3.3 billion over Quarter 3 of this year, when compared to the same period last year. The average deal size also increased by 12 per cent to $45.8 million.

The vast majority of activity came as a result of the purchasing deals and strong investments made by mobile developers, which made up 47 per cent of all games M&A value and 29 per cent of games M&A volume. The report found that mobile games account for almost half – 43 per cent – of mobile app usage across iOS/Android tablets and smartphones, as well as for 67 per cent of all tablet usage. They also made up 72 per cent of mobile app revenues over the course of this year, up from just 40 per cent in 2010, as well as 40 per cent of mobile app downloads via the iPad and iPhone. The category also monetizes “four times more effectively than all other mobile app categories combined,” the report confirmed. Digi-Capital founder, Tim Merel, said: “When we anticipated a record for games [mergers and acquisitions] in 2013 two weeks ago in our Q3 2013 Global Games Investment review, we were not expecting that record within two weeks.” The fact that the vast majority of the M&A activity in the digital games sector came from the mobile games space, in particular the East Asian markets of Japan, South Korea and China, was not surprising - this was the same trend as was recorded last year. “It’s no secret that mobile Internet is disrupting technology markets, with Gartner forecasting that mobile apps revenue will grow 5x from $15 billion in 2012 to more than $70 billion in 2016. Mobile internet could create up to $11 trillion in value globally by 2025 (across all industries, not just games), built on a well developed mobile tech stack," said Mr Merel. "For games, the transition to free-to-play and communal gameplay is changing sector dynamics, delivering up to 10x-20x revenue uplifts for market leaders," he added.

The report also cited major deals including the recent $1.5 billion majority stake investment in Clash of Clans developer Supercell by Soft Bank, as playing a large part in the unexpectedly high levels of money generated by M&A activity across the sector. Other deals mentioned included Ourpalm's recent acquisition of Chinese studios Playcrab and Shanggames.

Asia’s potential dominance over the sector appears to be gaining momentum each year, as eight of the 10 largest games M&As that took place last year were made by Chinese, Japanese or South Korean buyers, rather than Western markets. "With over 70 per cent of global apps revenue from games in 2013, and forecasts that Asia will dominate global mobile/online games revenue (China 32 per cent, South Korea 12 per cent, Japan 10 per cent by 2016), mobile and Asia continue to drive games growth going forward,” Mr Merel said.

The report confirmed that the mobile apps and games market was one of the fastest growing in the world, adding that companies should be considering the market for investment as a result of its position as a serious contender for being the largest technology market in the world today. Indeed, the "opportunity cost of not investing is potentially more significant than the investment itself. As well as being a major opportunity, mobile disruption could pose a significant risk for those who don’t learn how to play," argued the report.

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