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Digi-Capital Global Games Investment Review 2015 Executive Summary

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Executive Summary of Digi-Capital Global Games Investment Review 2015: Review of global games market including all games sector reviews, revenue forecasts, industry dynamics, trends, investment and …

Executive Summary of Digi-Capital Global Games Investment Review 2015: Review of global games market including all games sector reviews, revenue forecasts, industry dynamics, trends, investment and M&A transactions, and public company comparables/indices.

Download Data Pack and Full Review at www.digi-capital.com/reports

Published in: Economy & Finance, Business

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  • 1. © DIGI-CAPITAL 2015 © Digi-Capital 2015www.digi-capital.com Global Games Investment Review 2015 Executive Summary Contact: info@digi-capital.com
  • 2. © DIGI-CAPITAL 2015 Executive Summary (in this free summary) Detailed Data: • Global games revenue forecast by sector • Games software revenue forecast by country/region • Global games M&A transaction value/volume • Games IPO market caps and volume • Games M&A transaction value/volume by sector • Games investment transaction value/volume by sector • Games 3 year investment returns • Games stock market valuation multiples • Games private M&A market valuation multiples Growth and consolidation opportunities Games sector reviews (economic analysis, sector dynamics, revenue forecasts, public stock market valuation comparables, public stock market performance, M&A transactions, investment transactions, sector growth and consolidation opportunities)* • Mobile • Social/web • Massively Multiplayer Online (MMO) • Console/PC • Tech • Advertising Contents (of Full Review) * Where available - see detailed table of contents for individual sector contents Note: investments <$250K included in total figures, but not listed separately DOWNLOAD NOW See Detailed Table of Contents 10 30 37 44 94 119 141 170 195 2
  • 3. © DIGI-CAPITAL 2015 3 Games market consolidation accelerates as growth stabilizes • Games industry consolidating with stable growth putting the Big Squeeze on mid-tier companies • Games software revenue could top $100B by 2018 driven by mobile - virtual reality a potential breakout • Asia the #1 games market to hit $45B by 2018 led by China, Japan and South Korea • Record $15B acquisitions with investment recovering to $1.5B in 2014 as mobile dominates • America and China the top 10 games acquirers in 2014 • China, Japan and South Korea continue to lead games IPOs • Total $24B of games exits across M&A and IPOs in 2014 with mobile taking the lion’s share • Private games investment 3 year exit returns >7x in 2014 • Global games public stock market index down by 14% in 2014 • Huge variation in public stock market and private games company valuations multiples • Consolidation rules until next innovation wave accelerates market growth All data available in Detailed Data/Charts and Full Review
  • 4. © DIGI-CAPITAL 2015 Games industry consolidating with stable growth from 2015 5 © Digi-Capital 2015
  • 5. © DIGI-CAPITAL 2015 6 Stable growth is putting the Big Squeeze on mid-tier companies © Digi-Capital 2015 Hit IP User scale Complete infrastructure High cashflow Low cost Hit IP potential Corporates Indies Mid- tier What next? Cut costs and acquire indies with hit potential Slim down to be nimble like an indie Leapfrog mid-tier to get acquired
  • 6. © DIGI-CAPITAL 2015 0 20 40 60 80 100 120 140 2011 2012 2013 2014 2015F 2016F 2017F 2018F Dedicated hardware Console software Online Mobile PC Advertising 7 Games software revenue could top $100B by 2018 Global Games Sector Revenue ($B) © Digi-Capital 2015 Note: Online includes MMO, social and web games All data available in Detailed Data/Charts and Full Review
  • 7. © DIGI-CAPITAL 2015 0 5 10 15 20 25 30 35 40 0% 5% 10% 15% 20% 25% 8 Driven by mobile games, with virtual reality a potential breakout Global Games Sector Revenue 2018F ($B) vs CAGR (14-18F) © Digi-Capital 2015 Revenue CAGR (2014 - 2018F) Revenue2018F($B) Mobile Advertising Dedicated hardware Online Console software PC Virtual Reality? All data available in Detailed Data/Charts and Full Review
  • 8. © DIGI-CAPITAL 2015 9 Asia the #1 games market led by China, Japan and South Korea Global Games Software Revenue ($B) © Digi-Capital 2015 $45B 0 10 20 30 40 50 60 70 80 90 100 2011 2012 2013 2014 2015F 2016F 2017F 2018F China Japan South Korea Asia (other) Europe North America Latin America MENA $27B $24B All data available in Detailed Data/Charts and Full Review
  • 9. © DIGI-CAPITAL 2015 0 20 40 60 80 100 120 140 160 180 200 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Investment Value ($B) M&A Value ($B) Investment Volume M&A Volume 10 Record $15B games acquisitions in 2014 as investment recovers Global Games Investments and M&A ($B) (excluding IPOs) TransactionValue($B) TransactionVolume © Digi-Capital 2015 All data available in Detailed Data/Charts and Full Review
  • 10. © DIGI-CAPITAL 2015 11 “Consolidation Crush”: 5 drivers of record acquisitions in 2014 Mobile growth  $38B mobile games 2018F revenue (vs $17B 2014)  Acquirers buying into large, high growth market  E.g. Microsoft/Mojang $2.5B, Tencent/C J Games (28%) $500M Mobile cannibalization  Mobile cannibalizing console, PC, MMO, social, web  Acquirers stopping mobile insurgents from eating their lunch  E.g. Zynga/Natural Motion $527M Legacy pivots  Disruption by new platforms pushes legacy companies to buy their way into the future  E.g. Facebook/Oculus $2B, Amazon/Twitch $1B Market cycle  Public/private games valuations trending downwards  $1.1B investment to Q3 2014 (vs $2B high in 2012)  King, Game Digital, iDreamSky IPOs, with several Chinese reverse takeovers. Chukong IPO postponed due to reported valuation concerns  Acquirers taking advantage of investment cycle phase  E.g. Giant Interactive take-private $1.6B Regional realignment  Asia $45B, Europe $27B and North America $24B revenue by 2018F changes the balance  Pan-regional acquirers leveraging strength to target domination at home and abroad  E.g. Softbank/Supercell (51%) $1.5B $2.5B $2B $1B $1.6B $1B © Digi-Capital 2015 Global video games acquisitions 2014 ($B) © Digi-Capital 2015 Mobile $6.2B MMO $3.3B Tech $3.2B Console $2.1B All data available in Detailed Data/Charts and Full Review
  • 11. © DIGI-CAPITAL 2015 US 6 China 4 America and China the top 10 games acquirers in 2014 12 China 6 Japan, 3 US, 1 2013 2014 © Digi-Capital 2015 All data available in Full Review
  • 12. © DIGI-CAPITAL 2015 13 China, Japan and South Korea continue to lead games IPOs 0 1 2 3 4 5 6 7 8 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 China Japan South Korea US UK Phillipines Games IPOs by Country © Digi-Capital 2015 All data available in Detailed Data/Charts and Full Review
  • 13. © DIGI-CAPITAL 2015 Mobile $14.8B MMO $3.3B Console/PC $2.7B Tech $3.2B 14 Mobile dominated $24B exit value across M&A and IPOs in 2014 Games exit value by sector 2014 (M&A and IPO) © Digi-Capital 2015 All data available in Detailed Data/Charts and Full Review
  • 14. © DIGI-CAPITAL 2015 15 Mobile also dominated $1.5B games investment in 2014 Games investment value by sector 2014 (excluding IPOs) Mobile $0.9B Tech $0.3B MMO $0.1B Console/PC $0.1B Advertising <$0.1B © Digi-Capital 2015 All data available in Detailed Data/Charts and Full Review
  • 15. © DIGI-CAPITAL 2015 16 Private market games investment 3 year exit returns >7x in 2014 Private market games investment 3 year exit returns 0x 1x 2x 3x 4x 5x 6x 7x 8x 2007 2008 2009 2010 2011 2012 2013 2014 3 Year Investment Return Moving average © Digi-Capital 2015 iPhone launch Financial crisis Mobile disruption Social games bubble All data available in Detailed Data/Charts and Full Review
  • 16. © DIGI-CAPITAL 2015 16% 2% -9% -14% -14%-15% -10% -5% 0% 5% 10% 15% 20% All MMO Games All Console Games All Social / Web Games All Mobile Games All Games 17 Games public stock market returns broadly negative for 2014 © Digi-Capital 2015 Games stock market sector 12 month returns to Q4 2014 All data available in Detailed Data/Charts and Full Review
  • 17. © DIGI-CAPITAL 2015 18 With huge variation in public stock market valuation multiples © Digi-Capital 2015 Games stock market EV/Sales valuation ranges Q4 2014 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x Mobile Social MMO Mean Console All data available in Detailed Data/Charts and Full Review
  • 18. © DIGI-CAPITAL 2015 19 And major variation in private games M&A valuation multiples Games private M&A EV/Sales valuation ranges 0x 2x 4x 6x 8x 10x 12x © Digi-Capital 2015 Mobile Social MMO Console Mean All data available in Detailed Data/Charts and Full Review
  • 19. © DIGI-CAPITAL 2015 20 Consolidation rules until the next innovation wave * Note: outlier deals may occur Consolidation Curve by Sector Sector Launch Sector Growth for Scale Sector Consolidation Sector Equilibrium Sector Consolidation Low High Medium Advertising Mobile Social/WebConsole/PC Expected Deal Activity* - VC Investment - Some small M&A - Limited M&A/ investment - Cost focus - Alliances or spinoffs - Growth equity investment - High volume, mid-market strategic M&A - Leveraged buyouts - Low volume, large scale strategic M&A Subscription MMO Virtual Reality Messaging Free-to-play MMO © Digi-Capital 2015
  • 20. © DIGI-CAPITAL 2015 About Digi-Capital Digi-Capital advises mobile, games and digital clients across America, China, Japan, South Korea and Europe Sell-side M&A Buy-side M&A Management Consulting Industry Analysis Selected Clients Note: includes investment banking, management consulting and industry analysis clients, as well as clients of Digi-Capital professionals while at prior firms 21
  • 21. © DIGI-CAPITAL 2015 Disclaimer This document has been produced by Digi-Capital LLC and is furnished to you solely for your information and may not be reproduced or redistributed, in whole or in part, to any other person. No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein and, accordingly, Digi-Capital LLC does not accept any liability whatsoever arising directly or indirectly from the use of this document. In particular, the inclusion of any financial projections are presented solely for illustrative purposes and do not constitute a forecast. The recipient should independently review the underlying assumptions of the financial projections. This document is intended for initial contact with individuals and entities known to Digi-Capital LLC. This document is intended for use by the individual to whom it is sent, it is confidential and may not be reproduced in any form, further distributed to any other person, passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose without the prior written consent of Digi-Capital LLC. In the event that you are not the recipient indicated and you have inadvertently received this document, please delete it immediately. This document does not constitute or form part of, and should not be construed as, an offer, solicitation or invitation to purchase, subscribe for, or otherwise acquire any securities nor shall it or any part of it nor the fact of its distribution form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any investment decision should be made solely on final documentation, and then only after review of the diligence materials and consideration of all relevant risks. Digi-Capital LLC does not have any responsibility for the information contained herein and does not make any representations or warranties, express or implied, as to the adequacy, accuracy or completeness of any statements, estimates or other information contained in this document. The information contained herein, while obtained from sources believed to be reliable, is not guaranteed as to its accuracy or completeness. This document may include forward-looking statements, including, but not limited to, statements as to future operating results and potential acquisitions and contracts. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “anticipates”, “aims”, “could”, “may”, “should”, “expects”, “believes”, “intends”, “plans” or “targets”. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. No assurances can be given that the forward-looking statements in this document will be realised. Digi-Capital LLC does not intend to update these forward-looking statements. No securities regulatory authority has approved or expressed an opinion about Digi-Capital LLC’s business prospects or any related securities. Any such securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), or any other state or federal securities laws and may not be offered or sold in the United States of America absent registration under the Securities Act or an exemption from the registration requirements thereof. Digi-Capital LLC and any entity referred to in this document have not and will not be registered under the United States Securities Exchange Act of 1934, as amended or the US Investment Company Act of 1940, as amended, and any related securities may not be offered or sold or otherwise transferred within the United States or to, or for the account or benefit of, U.S. persons except under circumstances which will not require Digi-Capital LLC or any associated entity to register in the United States in accordance with the foregoing laws or any other law. Digi-Capital LLC is the copyright owner of this document and does not grant you any licence to copy, adapt or distribute it, in whole or in part, without Digi-Capital LLC’s written permission to do so. 22