Drake Star: Game deals picked up in Q3 despite economic headwinds

Drake Star: Game deals picked up in Q3 despite economic headwinds

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Game industry investments and acquisitions picked up in the third quarter after a slow second quarter despite economic headwinds, according to a report by Drake Star Partners.

That should offer some relief to game companies that are either looking to raise money or get acquired.

In Q3, the number of deals was up to 81 valued at $6 billion, compared to 70 valued at $1.8 billion in Q2. And for the nine months ended September 30, there was a mammoth $123 billion in total deal value through 976 announced and/or closed deals (investments and M&A combined). In the same period, 954 deals were announced with a $115 billion in disclosed total deal value during this period, Drake Star said.

“In Q3, it was still very active, and we were excited to see at least one large deal with the Unity acquisition of IronSource proposed,” said Michael Metzger, partner at Drake Star, in an interview with GamesBeat. “There were a lot of smaller and midsize deals. We don’t really know the deal values for a lot of those. So looking at the deal value for the quarter was more difficult.”

Of course, there are a lot of subtleties in Drake Star’s Global Gaming Industry Report for Q3 and first nine months of the year. As an example, many deal values are undisclosed, and the full economic impact of a weakening global economy may still lie in the future.

976 game deals valued at $123 billion have been announced or closed this year.
976 game deals valued at $123 billion have been announced or closed this year.

“2022 has been a mixed year for gaming,” said Metzger. “We saw some of the largest M&A deals ever at the start of the year and then experienced a notable slow-down in Q2’22 due to global macroeconomic challenges. With an increase in M&A and financings volume in Q3, we anticipate healthy deal activity and possibly even some mega deals for the rest of the year and beyond.”

Starting in March, the world saw turbulence with the war in Ukraine, the stock market crash, inflation, a cryptocurrency winter with Bitcoin prices falling 70%, slowing game sales, a shortage of consoles, and falling NFT prices. That was a scary environment for growth.

But even as the broader markets witnessed a slowdown, gaming was also impacted but M&A and financing activities remained largely stable, Drake Star said. Even so, Metzger said in an interview that during Q3 many game startups probably saw declining valuations and more delays from investors in deciding whether to offer funding, in contrast to a red-hot environment before.

“We hear on the deals that valuations are definitely adjusting down,” Metzger said. “There are still a few super hot deals at high valuations, but most of them came down significantly.”

Scattered layoffs across the industry also probably meant that the job environment for games cooled down as well, but we don’t have as much detail on that part of the economic picture.

Q3 results

Drake Star Partners
Game deals were up in Q3, even after accounting for large deals.

In the third quarter, gaming deal activity saw a significant increase in M&A volume to 81 announced deals, up from 70 deals in Q2’22. Unity’s announced $4.4B acquisition of IronSource was the largest deal of the quarter.

Even without that deal, M&A value grew in Q3 versus Q2. While the majority of the deal values were undisclosed, many of the top buyers were active, led by Embracer with eight deals including Middle-Earth Enterprises and Tripwire; NetEase (Quantic Dream); Sony (Savage Games, Repeat.gg); Zynga (Storemaven); and Scopely (Stumble Guys).

Private financings also increased in Q3 with 216 deals, up from 169 financings last quarter. A total of $2.3 billion, including From Software ($260 million from Tencent and Sony), Loot Mogul ($200 million), Limit Break ($200 million) and Animoca ($185 million).

Blockchain deals still plentiful

Drake Star Partners
Blockchain game deals were surprisingly plentiful amid the crypto winter.

While the crypto market continues to be under pressure, investors continued to show strong interest in
blockchain gaming companies. Blockchain games accounted for 40% of total deals and 50% of value invested.

“Crypto obviously had a bit of a meltdown and yet still attracted a lot of funding,” Metzger said. “It is a surprise that it has held up despite the significant correction.”

There were large deals like Animoca’s funding as well as smaller deals where the values weren’t known. If the money dries up for crypto investments, we may see acquisitions happen in blockchain games. But that hasn’t happened yet, Metzger said.

Public game companies sink

Top game investors of the first nine months of 2022.

In public markets, Faze Clan managed to go public at a $750 million valuation through a special purpose acquisition company (SPAC), though not without some difficulty as PIPE investors pulled out. Valofe ($3.5 billion valuation) and Asia Innovations Groups ($2.5 billion valuation) also went public through SPACs while Technicolor Creative Studios spun off to focus on VFX and games, now listed on the Paris stock exchange at $1 billion valuation.

As for the public game companies, most of the valuations started sliding in May. Many stock prices are down 30% to 50% for the year. Early this year, Drake Star predicted that we could hit $150 billion in deals by the end of the year. With Q3 numbers at $123 billion, it’s still possible, given the potential for some large deals to still happen, Metzger said. There are some wacky rumors in the market still.

It’s unclear if Microsoft’s acquisition of Activision Blizzard will close in a timely way, as the United Kingdom’s regulators pushed back on approval. Metzger thinks it will eventually get approved, but it won’t be easy.

Nine month results

Drake Star Partners
Game M&A deals are on a path for a record year in 2022.

In the first nine months of the year, Drake Star tracked $102 billion in announced and/or closed M&A activity across mobile, PC / console and esports including the largest ever gaming acquisition of Activision by Microsoft at $68.5 billion.

Embracer remained the most active consolidator in the industry with 14 deals valued at $1.01 billion. PC / console and mobile went head-to-head with 68 and 64 transactions, respectively.

So far this year, $9.6 billion has been raised through 685 financing rounds for private companies including 15 large $100 million-plus raises. The most active VCs included Bitkraft with 33 deals, a16z (23), Griffin Gaming Partners (21) and Galaxy Interactive (20).

More than $3.4 billion was raised by blockchain / NFT gaming companies in the first nine months of the year. Almost half of total amount raised by early-stage companies.

One of the things that is encouraging about the expectation that economic activity will continue is that many of the big game venture capital companies still have a lot of dry powder, Metzger said. For instance, a16z raised more than $4.5 billion for its gaming fund.

“A lot of them have a longer term vision,” Metzger said.


the top game investors of 2022.
The top game acquirers of the first nine months of 2022.

The Q3 report analyzes the first nine months of 2022 in terms of deal activity and volume across market segments (M&A, private placements, public markets), M&A activity by volume and multiples, public market performance and valuations, and discusses the most active gaming buyers and venture capital (VC) investors.

The report further focuses on the market activities for Q3 2022 by breaking out the most significant deals across M&A, private financings and public market updates. One of the deals that isn’t included in the numbers was Tencent’s move to buy $297.2 million worth of shares in the Guillemot brothers firm that controls a lot of the shares in Ubisoft. That move helped Ubisoft stabilize its share price, but such moves aren’t counted as investments as they can be easily unraveled by selling the position.

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