The red hot gaming sector continues its boom into 2022 as Take-Two Interactive Software, Inc. announced its $12.7 billion acquisition of Zynga Inc. After record levels of deal making in 2021, the COVID-19 pandemic and emerging technologies are projected to propel the sector into a $200 billion market in 2022.
“This transformative combination unifies two global leaders in the interactive entertainment business and establishes Take-Two as one of the largest and most diversified mobile game publishers in the industry,” according to the companies. In another indication of gaming’s momentum, the purchase price represents a premium of 64% over Zynga’s closing share price last Friday, which is more than double M&A’s long term average of 30.6%.
While gaming usage rose 7% per year during 2018 and 2019, that jumped to a 31% increase in 2020. As the pandemic forced people to stay home, gaming innovators have capitalized on their rapidly growing userbase with three emerging trends, according to Morgan Stanley. First, companies have worked to fuse the gaming experience with social interaction. Whether playing Zynga’s “Words with Friends” over Facebook or fighting to conquer a classmate’s empire on Take-Two’s “Civilization” franchise, gaming has become a more socially interactive experience. Second, companies have rapidly monetized their in-game experiences by enabling players to purchase special weapons for their avatars, customize their gaming experience with costumes, or other methods of improving their in-game experience and conveying status to other gamers. (Some of these new innovations have resulted in litigation, however.) In fact, gamers now even purchase virtual real estate. Finally, emerging technologies are permitting faster gameplay, improved graphics, and more accessible virtual reality experiences.
Companies have begun to capitalize on these emerging trends. Take-Two touts this acquisition as enabling it to lead the industry, writing “[t]he transaction is expected to establish Take-Two as a leader in mobile gaming, with mobile expected to comprise over 50% of its Net Bookings in Fiscal Year 2023 (as compared to an estimated 12% in Fiscal Year 2022).”
Structured as a reverse triangular merger, this deal includes a go-shop provision, permitting Zynga to solicit competing offers from other suitors for 47 days. According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions, such provisions have become a rarity, with only 5.83% of deals announced over the past 12 months including such a provision. And the 47 day period is the longest go-shop duration over the past 12 months – the duration ranged from 26 to 47 days, with a mean of 38 days.
Take-Two is advised by Willkie Farr & Gallagher LLP, and financial advisors J.P. Morgan Securities LLC and LionTree Advisors LLC. Zynga is advised by Wilson Sonsini Goodrich & Rosati, and financial advisor Goldman Sachs & Co. LLC.