The rise of M&A in the gaming industry | FT Big Deal
In this video on the rise of M&A in the video gaming industry, M&A experts from Baker McKenzie and Embracer Group discuss the changing regulatory environment, the considerations acquiring companies need to bear in mind, and the preparations they need to undertake to ensure a successful deal.
M&A in the video gaming sector got off to a roaring start this year,
with $85.4 billion worth of acquisitions announced in January alone, surpassing a
record $85 billion for all of 2021. In recent years we have seen companies
in the gaming sectors transforming the business models by expanding into different
areas of so-called techno-tainment. We see convergence of PC and consoles,
we see convergence of contents like films, music, and games.
No wonder companies from all sides of the market are rushing to gobble up these opportunities.
At stakes, access to new intellectual property, diversified platforms, and a huge,
global audience. But as ever, fresh
opportunities present fresh challenges. There’s increased regulatory scrutiny.
There’s an overall increase in regulations in the gaming industry, which makes it a bit difficult
to keep up at times with the developments. There’s the challenge of growing sustainably just
by managing post-acquisition integration. Those increased and evolving regulations now
cover areas such as antitrust, foreign investment screening and most critically, data protection.
We increasingly find that that’s a focus of a lot of the regulators when they examine deals.
Would this actually turn entertainment games companies into media companies?
Will it turn them into an opinion-building platform? What kind of data is collected?
Is it transferred out of the jurisdiction? How is that data used?
As such, we see some regulators will apply new definitions to companies
that are in the gaming sector. To offset the risks, dealmakers need to understand
the legal issues specific to the industry, plan early, and monitor changes to local laws.
Companies before they embark on a M&A deal, they must consult and work with the advisors
to map out the regulatory framework that would be relevant for the transaction.
In some cases, where appropriate, they may need to even consider upfront whether it is necessary
to carve out certain assets, businesses. That strategy has helped Embracer Group
snap up more than 60 companies in the last two years, with more in the pipeline.
We’ve been able to move quickly, maybe more so than some of our competitors.
And we’ve engaged early with advisors to understand and be able to zoom
in on the key issues of the deal. Sellers really want deal certainty
and as little conditionality as possible. So it’s important to try to figure out the clear
path to closing the deal at an early stage. Aside from pre-deal challenges, acquirers must
also consider post-deal risks and that includes ensuring the target
company has the right values and culture across all aspects of ESG standards.
Over the past couple of years, we’ve seen sustainability issues move beyond the basics
such as tax compliance, environmental risk, or anti-corruption. And now there are new topics
such as human rights, integrity, complex trade compliance matters, and responsible gaming.
Buyers are set to face new and tougher hurdles as the industry evolves.
But, rather than slowing M&A, we can expect even more activity as novel
platforms such as Web3 and the metaverse open new ways to reach and monetize users.
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