Why a declining economy could spur increased M&A activity in the mobile gaming industry

“In 2023, I don’t think the appetite for acquisition will change much,” said Zynga Chief Product Officer Scott Koenigsberg. “I think the targets will probably be younger companies in their evolution, and so we’re going to have to do more analysis to try to figure out what their long-term forecasts would be.”

The aforementioned smaller mobile gaming companies are likely to feel the squeeze of a recession earlier than the Zyngas of the world. Many rely on brands’ advertising dollars to stay afloat, and as those dry up, they are likely to turn toward acquisitions as a potential emergency exit. 

“Unfortunately, what 2023 is going to show is a higher-than-normal attrition for the mid-to-long tail of developers who just cannot get past this inertia of downward pressure with these existential issues. Now, VC financing has been a little bit curtailed, and so sources of capital are not as plentiful as they used to be, so you’re going to see a lot more mid-to-long tail attrition, and I would even say there’ll be some roll-ups,” said Petrovic, who currently serves as chief business officer for the mobile game developer FunPlus. “There’ll be some acqua-hires at that kind of sub-scale, as people look for capabilities and competencies that can complement their business — and they’ll come at attractive multiples, because the other alternative is that you kind of shut down.”

The numbers appear to support the idea that gaming M&A activity is not necessarily tied to the ups and downs of the broader economy. Even as broader market activity slowed down in the second half of 2022, the volume of acquisitions remained steady: 76 M&A deals were announced across the industry in Q4 2022, an increase over the 69 deals announced in Q4 2021, according to Drake Star’s 2022 Global Gaming Report. At the same time, the total monetary value of those deals was billions of dollars lower, indicating that most of the acquisition targets were smaller-to-mid-sized companies, despite the increased volume of deals.

“We’re very optimistic that the volume will continue to stay, and there’s going to be a ton of activity [in 2023],” said Michael Metzger, a partner at Drake Star and one of the authors of the report. “Because, also, a good amount of companies went public, and they’re all under enormous pressure to show some growth and profitability, even more so than a year ago — and there’s a lot of active buyers out there.”

As for those smaller-to-mid-sized mobile game developers, many of them are certainly aware of the market forces brewing under the surface — and they plan to take advantage.

“We are positioning our company and designing all of our company structures, from the zero, to be an attractive M&A candidate,” said Deniz Korzay, the CEO of the mobile game studio Fortune Mine Games, which Korzay co-founded in early 2021. “Of course, Zynga is one of the high potentials.”