Games Industry M&A is Still Booming. But Why?

Levi Matkins, CEO of LifeStreet, an independent programmatic marketing platform, explains the motivations behind this recent wave of acquisitions…

 

How do we explain the recent wave of M&A in adtech?

The past 18 months have seen a boom in mergers and acquisitions across the adtech ecosystem, as companies look to expand their offering and create their own ‘walled gardens’ in response to ATT, as companies look to secure as much first-party data as possible. This adtech M&A boom has not abated in recent months. Indeed there are a number of large-scale deals still in the works – such as Microsoft’s ongoing $68.7 billion acquisition of Activision Blizzard and Sony’s planned purchase of Bungie for $3.6 billion – and there is no sign that M&A activity is going to slow down throughout the rest of this year.

There are two main reasons that are driving acquisitions in adtech now, as opposed to, say, five years ago. The first is that public valuations have been far kinder to tech companies, and adtech in particular, than they have previously been (even with the significant tech sell-off in the last several months). Due to these increased valuations, companies now have more access to capital to spend on acquisitions, and by offering expanded services & increasing revenue, they can increase the likelihood they’ll be valued even more favorably. Of course, public market valuations of adtech companies have been falling since the turn of the year, meaning that while we’ll continue to see M&A activity, buyers will be acting with a hefty dose of caution until markets recover.

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The second is the need for adtech companies to scale campaigns seamlessly, and realize the benefits that working at scale provides. Deep learning was first introduced into the adtech toolbox around 7 years ago and, with it, came the realization that having access to more data continues to make these prediction systems more accurate. The ability to expand existing data pools by accessing this data is a big reason why adtech companies are looking to buy gaming companies, rather than rely on their existing – and increasingly limited, data pools.

There is certainly a growing feeling that first-party data is now the gold standard of reliable insights for advertisers, especially as increasing numbers of users are opting out of being tracked for advertising purposes. There are strong signs that when Apple introduces iOS16, it will choose to enforce stricter controls around fingerprinting, which is still a widespread practice. This will only increase the need for advertisers to have access to large pools of first-party data, and will be a key driver for more mergers and acquisitions in the coming months.

Another key driver for more mergers and acquisitions is competing with the Tech Giants; Alphabet, Meta, Amazon, Apple and Microsoft. We do have to remember that these are some of the biggest and most valuable companies in the world, and their reach goes far beyond the adtech sector. Where smaller companies, like LifeStreet, can set themselves apart is by offering greater transparency controls, and allowing advertisers insight into how and why their data is used. Something companies like  Meta or Google simply don’t do. LifeStreet, alongside other independent adtech companies, are using this differentiator to plug the gaps in the offering of the largest platforms.

Why are mergers with adtech companies so popular now?

There are slightly different motivations behind each type of acquisition.

For example, the catalyst  for adtech companies acquiring gaming companies relates directly to privacy concerns. Essentially, it’s a question of data, and being able to parlay efficiencies in advertising to their advantage. With monetization shifts in recent years, the hyper casual game genre has become a huge revenue driver for the industry. Success with hyper casual games relies upon rapid user acquisition (UA) on a mass scale to shift users from title to title. Here, acquisitions of gaming companies are hugely important because they allow publishers – who already possess the tech to monetize content at scale – to acquire user data they previously wouldn’t have had access to.

The spate of recent moves from non-gaming companies into the gaming space really highlights the ongoing growth and increased value of the industry as a whole. Obviously, there’s a lot of hype around the metaverse and how this may develop. As such, companies, such as Netflix, with its acquisition of Next Games seem to be taking the opportunity to strike while the iron is hot, getting their foot on the ladder before knowing exactly where it’ll take them. The likely result of this is that we’ll see more and more ‘Content Fortresses,’ especially within media companies such as Netflix as they look to offer their customers a full range of content and keep their customers loyal.

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But ‘walled gardens’ for content aren’t a permanent solution. As an independent adtech company, it’s really encouraging to see gaming companies valuing adtech capabilities as core competencies of a successful business. However, there is the potential for concern if everyone tries to take a page out of Meta’s book, and create their own ‘walled garden’. This could result in a less varied gaming industry, with increasing numbers of independent companies being squeezed out by larger competitors.

Overall, though, the number of acquisitions of companies focussed on mobile gaming is a sure sign of the continued strength and growth of the industry. I expect we’ll see companies centered around mobile games go from strength to strength as mobile continues to be cemented as the most valuable platform for the gaming industry.