The time is ripe for online and mobile game studios to consider mergers and acquisitions, according to Tim Merel from Digi-Capital, an investment bank focused on high growth digital companies across video games, technology, media and telecoms in Europe, North America and Asia.
"Online and mobile studios have a competitive advantage right now," said Merel, speaking at a Gamasutra-attended session at GDC Europe today. "Nobody is yet truly dominant in the space. You have markets rapidly expanding, with a great deal of interest around them coming from investors."
"While organic growth is often a good way for game studios to grow, in the current market you have to consider other ways to accelerate. In terms of mergers and acquisitions, the market doesn't get much better than it is right now."
Merel explained that global investment returned to 2007 levels by last year, after a significant dip that occurred in line with the recession. "This year, global investments have accelerated even further than that, to the highest they've been in years. It's an extremely exciting times for studios looking to sell."
However, Merel was quick to urge anyone considering selling their studio or entering into a merger should ask some difficult questions first. "The first thing you need to ask yourself is: why do you want to sell? If you're running a great games company, producing strong work and being profitable, then sometimes it can be better to pitch for some investment money and simply grow faster that way."
"Also, it's important to ask whether you need to sell? The time any company should sell or enter a merger is from a position of strength, not weakness. The best time to sell is essentially the time when you don't need to."
While timing is everything, it's also very important to get your story straight before approaching a buyer. "You have to be very clear on why you are selling, particularly while valuations are strong as they currently are. If a buyer asks and you don't have real clarity on why you are looking to sell or merge, the risk is that buyer thinks that you know something they don't, either about your own company, or the wider market."
The importance of story is also in identifying why you might be a valuable proposition to a buyer. "Identifying this will help you immeasurably with your pitch," he said. "Do you offer some kind of strategic value to the buyer? Or are you exhibiting sustainable growth? Do you have a very valuable core team? Or perhaps you have developed and now own some strong IP? Knowing your value proposition is key to a successful bid."
In closing, Merel urged studios interested in M&A to be honest at every stage of the process. "Make sure you always have all of your facts to hand, and never ever tell a lie to a buyer. They will find out about it and they will immediately walk away. It's the first rule of investment: if you find out a lie, you walk away. Instead, focus on what your story is, and what you provide and do so with absolute honesty."