The UK gaming industry flourished in the past year, as the pandemic turned gaming into a social activity, expanding demographics and a widening its consumer base.
M&A deals for UK video game makers hit £1.9bn in 2021, a 63 per cent increase on the £1.2bn in 2020, according to research from accountancy and business advisory firm BDO.
A total of 14 takeovers of UK video games makers took place in 2021, compared to nine in 2020 and just six in 2019.
The ‘race for content’ among tech giants and major games makers has triggered a string of major M&A deals in recent weeks, headlined by Microsoft’s acquisition of Call of Duty maker Activision Blizzard for $69bn and Grand Theft Auto maker Take Two Interactive’s purchase of Zynga, creator of Farmville and Words With Friends.
There is an expectation that video games companies will play an important role in the building of the metaverse over the coming years.
BDO said that video game firms have improved their ability to produce predictable long-term revenues as once a hit game has been released, it can quickly be turned into a series.
The increase in use of subscription models and microtransactions in gaming has also drawn the eye of potential acquirers. Buyers see these revenue streams as a healthy diversification from the traditional ‘yearly release’ model.
The UK has long been regarded as a centre of excellence for video game development.
Notable 2021 acquisitions in the UK included the US gaming giant EA’s purchasing of Playdemic, maker of Golf Clash, for £1bn, and Chinese entertainment conglomerate Tencent’s acquisition of Sumo Group, designer of the Sonic Racing, LittleBigPlanet and Crackdown franchises, for £850m.
Tony Spillett, head of the technology & media industry group at BDO, explained: “Video games are the content that almost all media companies are looking to snap up at the moment. Regardless of the success of tech companies in building the metaverse, this trend still has some way to go.
“Many small development houses need only a little external investment in order to grow into big industry players. An innovative but small production house infused with capital and resources can rapidly turn into a high value business.”
Four UK video game companies were acquired by private equity funds in 2021, compared to none in 2020 and two in 2019. BDO said that PE funds started to look at acquisitions of video game producers as the valuations of some of them remain lower than in other parts of the tech sector.
Another reason for the growth of the British video game industry is the impact of the Video Game tax relief. A game certified as ‘British’ makes the production company eligible for 25 per cent relief on up to 80 per cent of the total core development expenditure. This has made the UK an attractive location for developers and has boosted home-grown businesses.”