Which business proposals are most often faced by a game publisher, – Yana Vesnina, M&A manager at ZiMAD, told in her column for App2Top.
Yana Vesnina
Most often in the market we come across six types of offers.
1) Sale of the entire studio
The owner offers to purchase the entire business asset from him. As a rule, such a proposal is associated with a loss of interest in the business. It may be due to both rising costs and problems with the main business, if the gaming was non-core. However, a scenario is possible when the owner wants to make an exit, seeing this as an opportunity to recapture previous investments.
If the business owner is a developer himself or is a profile investor for game dev, then, again, if we are not talking about exit, he usually hopes to attract an additional development budget as part of the sale. In this case, he may also accept proposals for a merger, acquisition or a new investment round.
Complexity
Selling a whole company is always a comprehensive strategic decision. The buyer is required not only competent legal support, but also readiness and expertise in the further conduct of the business itself.
2) Selling a project with a team
Selling the team together with the project. This scenario is less common than a separate project implementation, since the owners are not always ready to transfer the team they have formed to a third party. Nevertheless, such offers regularly appear on the market.
Complexity
As part of such transactions, the seller has to split up the team, and the buyer has to fit it into his business model. Both procedures are painful, and their consequences do not guarantee the desired result (it is not always possible to predict how the remaining team will react to the deal, and whether the sold team will integrate into someone else’s structure).
3) Sale of a recently released project
A common practice is to try to sell projects that have recently been released worldwide (no more than six months ago). Usually these are games with mediocre metrics. At best, they simply have a low level of return on investment, at worst, projects in their current form are not able to recoup the cost of traffic.
Willingness to sell a project can be either a business decision (in the spirit of “it didn’t work out, we sell and make the next project”), or a gesture of despair when the team ran out of resources or lacked expertise to bring the game to mind.
In the latter case, we have repeatedly witnessed how the seller (if the project and the team seemed promising to the buyer) was ready to consider not only the sale of the game, but also the entry of his team into another studio.
Complexity
When buying a controversial gaming product, the cost must include the costs of subsequent development, work on improving metrics, and much more. This entails either a strong reduction in the value of the transaction for the seller, or its rejection.
4) Sale of an unreleased project
Many studios (first of all, we are talking about those who are engaged in a hyper-casual niche) we are ready to sell new projects that are just being prepared for release and even successfully pass the first tests.
Complexity
Now companies are primarily interested in buying projects with an existing audience. It is not easy to sell a game that has no users at all or a few of them. To make a decision, the buyer needs guarantees of product growth or at least guarantees of payback.
5) Sale of an operationally expensive project
It happens that a studio takes on a large ambitious project, develops it for a certain time, and then it either breaks down negotiations with the publisher who initially gave the “green light”, or there was no publisher and could not be found. The studio understands that it is not ready to complete the project and is looking for a partner who is ready to offer M&A.
Complexity
The seller needs to find a buyer with relevant experience in the genre, who will be ready not only to invest financially in a project that is far from completion, but also to help the team with expertise.
6) Sale of a project implemented by a non-core team
It is not uncommon for a studio to sell projects that do not match its portfolio or expertise. This happens when a studio, having tried to enter a new niche for itself, fails and seeks to compensate for losses.
For example, now in the portfolio of many studios that previously dealt mainly with hyper-casual games, you can notice merge titles. Most of these studios have no experience in operating casual titles. Therefore, at the stage of surgery, they begin to experience serious problems.
So for some studios, the best option is to sell the project to a publisher or another developer who will be able to successfully operate the product.
Complexity
Often at the start, the studio develops a project for itself and does not think about what it will sell in the future. Therefore, she should be ready either to prepare it for transfer on her own (which will require additional investments), or to reduce the price (if there is no detailed documentation, comments in the code, etc.).
In fairness, the latter applies to any transaction when only the project is transferred.
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There is a demand for the above assets on the market, but most often the available offers do not meet the expectations of sellers.
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As a conclusion, I will briefly tell you what, as a rule, game publishers expect from deals, they are also buyers.
It is clear that each publisher has its own business strategy, its own tasks. However, the main goal is always the same — to increase revenue and profit.
Accordingly, when making a deal, they primarily focus on whether the purchase can help them earn more.
Therefore, first of all it is important for them to understand:
- how much was spent and invested in the asset;
- how soon can the asset recoup the transaction;
- how much additional investment is needed in the asset so that it pays off the transaction;
- does the asset contain IP (and how much these IP can be estimated separately, whether they bring royalties);
- how numerous is the live audience of the asset, what percentage of the audience is paying.