{"id":122320,"date":"2020-12-18T00:00:00","date_gmt":"2020-12-18T00:00:00","guid":{"rendered":"http:\/\/www.gamasutra.com\/view\/news\/375388"},"modified":"2020-12-18T00:00:00","modified_gmt":"2020-12-18T00:00:00","slug":"opinion-game-company-acquisitions-the-growth-stock-bubble","status":"publish","type":"post","link":"https:\/\/sickgaming.net\/blog\/2020\/12\/18\/opinion-game-company-acquisitions-the-growth-stock-bubble\/","title":{"rendered":"Opinion: Game company acquisitions & the ‘growth stock bubble’"},"content":{"rendered":"
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Gamasutra: Simon Carless’s Blog – Opinion: Game company acquisitions & the ‘growth stock bubble’<\/title> <!--[if lt IE 9]> <a href=\"http:\/\/html5shim.googlecode.com\/svn\/trunk\/html5.js\">http:\/\/html5shim.googlecode.com\/svn\/trunk\/html5.js<\/a> <![endif]--> <!-- CSS --> <!-- link href=\"https:\/\/twimgs.com\/gamasutra\/css\/minified.css\" rel=\"stylesheet\" type=\"text\/css\" \/ --> <!-- Mobile Specific Metas --> <!-- Start Visual Website Optimizer Asynchronous Code --> <!-- End Visual Website Optimizer Asynchronous Code --> <!-- Start HeatMap.me Code --> <!-- End HeatMap.me Code --> <!-- Start: GPT Sync --> <!-- End: GPT --> <!-- Eloqua tracking code --> <!-- End Eloqua tracking code --> <!-- Google Tag Manager (noscript) --> <!-- End Google Tag Manager (noscript) --> <!--Cookie banner code starts here --> <!--Cookie banner code ends here --> <!-- Informa Branding code goes here--> <\/p>\n<div id=\"iribbon-container\" class=\"content-body-wrapper\"> <button id=\"iribbon-title\" title=\"show\/hide\" class=\"inactive\">Informa<\/button> <\/p>\n<div id=\"iribbon-detail\" class=\"ribbon-hide\">\n<div id=\"iribbon-left\">\n<p>Gamasutra is part of the Informa Tech Division of Informa PLC<\/p>\n<\/p><\/div>\n<div id=\"iribbon-right\">\n<p>This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. 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<\/ul>\n<\/div>\n<p> –> <!--end calendar--> <!--begin about--> <\/p>\n<div class=\"bottom2\"> <a href=\"https:\/\/www.gamasutra.com\/advertise\"> <img decoding=\"async\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble.jpg\" alt=\"Sponsor\" border=\"0\" class=\"whiteTop\" width=\"177px\" height=\"60px\"> <\/a>\n<\/div>\n<p> <!--end about--> <!--begin network--> <\/p>\n<div class=\"leftnav_network bottom2\"> If you enjoy reading this site, you might also want to check out these UBM Tech sites: <\/p>\n<hr>\n<hr>\n<p> <br class=\"clear\">\n<\/div>\n<p> <!--end network--> <!--begin store--> <!--end store--> <\/div>\n<p><!--end leftcol--> <\/div>\n<\/div><\/div>\n<div class=\"span-16 last\">\n<div class=\"content_box_middle\"> <!-- InstanceBeginEditable name=\"BodyContent\" --> <\/p>\n<div class=\"page_item\">\n<div><a name=\"twitter_share\" href=\"http:\/\/twitter.com?status=RT @gamasutra: Opinion: Game company acquisitions & the 'growth stock bubble' http:\/\/www.gamasutra.com\/blogs\/SimonCarless\/20201217\/375387\/\" target=\"_blank\" rel=\"noopener noreferrer\"><img decoding=\"async\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-1.gif\" alt=\"Share on Twitter\" border=\"0\" height=\"20\"><\/a> <span id=\"edit_post_link\"><\/span> <a href=\"https:\/\/www.gamasutra.com\/blogs\/rss\/\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-2.gif\" width=\"15\" height=\"15\" border=\"0\" alt=\"RSS\"><\/a> <\/div>\n<hr>\n<div class=\"item_body mobile_image_transform\"> <strong><i><small> The following blog post, unless otherwise noted, was written by a member of Gamasutra\u0092s community.<br \/>The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company. <\/small><\/i><\/strong> <\/p>\n<hr>\n<p><em>[The <a href=\"https:\/\/gamediscoverability.substack.com\/\">GameDiscoverCo game discovery newsletter<\/a> is written by \u2018how people find your game\u2019 expert & <a href=\"http:\/\/www.gamediscover.co\/\">GameDiscoverCo<\/a> founder Simon Carless, and is a regular look at how people discover and buy video games in the 2020s.]<\/em><\/p>\n<figure><a href=\"https:\/\/cdn.substack.com\/image\/fetch\/f_auto,q_auto:good,fl_progressive:steep\/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F771bae31-f998-490f-869f-5c014f34813b_800x450.jpeg\" target=\"_blank\" rel=\"noopener noreferrer\"><img decoding=\"async\" alt data-attrs=\"{"src":"https:\/\/bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com\/public\/images\/771bae31-f998-490f-869f-5c014f34813b_800x450.jpeg","height":450,"width":800,"resizeWidth":null,"bytes":165989,"alt":null,"title":null,"type":"image\/jpeg","href":null}\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-1.jpg\" width=\"600\"><\/a><\/figure>\n<p>For the final GameDiscoverCo free newsletter of this week, we wanted to bust out a spicy opinion piece that\u2019s perhaps not as granular as \u2018what new feature did Steam launch?\u2019 But it\u2019s just as relevant for the future of how games are bought, discovered, and played.<\/p>\n<p>Why are some companies in the game biz – from Embracer Group to Keywords to EG7 & beyond – going on studio buying sprees right now? (I did <a href=\"https:\/\/twitter.com\/simoncarless\/status\/1329071847229440004\">make a joke<\/a> after Embracer <a href=\"https:\/\/venturebeat.com\/2020\/11\/17\/embracer-group-acquires-10-game-studios-and-a-pr-firm\/\">bought 12 game studios & a PR firm<\/a> recently: <em>\u2018Scoop: Embracer Group planning to change its name to Katamari Entertainment.\u2019<\/em>)<\/p>\n<p>Should we be worried about it, why is it happening, and what are the larger financial underpinnings? Since I\u2019m under the impression I know \u2018enough to be dangerous\u2019, I\u2019ll have a crack at this topic, albeit from a slightly grumpy perspective.<\/p>\n<h2>Why so many game studio acquisitions?<\/h2>\n<p>Let me start with a thesis. The pace of game development (and outsourcing studio, and publisher, and other entity) acquisitions is reaching a fevered pace in certain areas that sometimes makes onlookers say \u2018???\u2019<\/p>\n<p>And there\u2019s one reason for that. The public financial markets are completely fine with massive, (initially) unprofitable* consolidation of game companies. (*Unprofitable including acquisition costs.) This is largely because revenue growth, not profit, drives company stock price in the global markets right now.<\/p>\n<p>This is something that hasn\u2019t been so much the case since, uh, just before the 1999 crash. Look at this:<\/p>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">‘With a combination of some the highest valuations ever seen and clear corresponding manic investor behavior, it seems clear to us that Growth stocks are indeed in a bubble.’ <a href=\"https:\/\/t.co\/8ab1VkRoWU\">https:\/\/t.co\/8ab1VkRoWU<\/a> <a href=\"https:\/\/t.co\/JQowQ6nJi5\">pic.twitter.com\/JQowQ6nJi5<\/a><\/p>\n<p>\u2014 Jesse Felder (@jessefelder) <a href=\"https:\/\/twitter.com\/jessefelder\/status\/1336371048359530502?ref_src=twsrc%5Etfw\">December 8, 2020<\/a><\/p><\/blockquote>\n<p>This is just for U.S. stocks, but the message is obvious. \u2018Boring\u2019 companies that are conventionally profitable are out. \u2018Sexy\u2019 companies that are growing revenue massively, but losing scads of money – or, sure, barely breaking even – are in.<\/p>\n<p>Here\u2019s a valuation-related example in the game space: although kids online behemoth Roblox just <a href=\"https:\/\/www.nytimes.com\/2020\/12\/12\/technology\/roblox-ipo.html\">delayed its initial public stock offering (IPO<\/a>) because it\u2019s concerned about valuations, its <a href=\"https:\/\/www.cnbc.com\/2020\/11\/19\/roblox-s-1-ipo-filing-released.html\">S1 filing before its stock debut revealed<\/a> that it lost $48 million in the last quarter on revenues of $242 million, but with revenue up 91%. And let me just clip this paragraph from the CNBC Roblox story for you so you can goggle:<\/p>\n<p><em>\u201cUnity just reported third-quarter revenue growth of 53% to $200.8 million and it\u2019s valued at $32 billion. Roblox is bigger and growing faster. Based just on a comparable multiple to annualized revenue, Roblox would be worth over $37 billion.\u201d<\/em><\/p>\n<p>So.. there\u2019s some math, wow. You can be losing $500,000 per day and be valued at $37 billion. This is not conventional company valuation etiquette. (If you go back far enough and look at conventional businesses, a company would be bought or valued at a multiple of its yearly profit, sometimes 8x to 12x profit. But many tech companies are valued at high multiples of revenue, not profit.)<\/p>\n<p>Of course, when companies go public, all shareholders – including company founders and veterans – get a slice of that massive (in my view, fairly illogical, but that\u2019s where we are!) valuation. And then they can sell their shares to investors, sometimes after a lock-up period.<\/p>\n<p>There\u2019s a lot of money to be made here – much more than \u2018profit on making a game\u2019, unfortunately. So\u2026 if you\u2019d like to go public as a game company, or already did so, and you\u2019re not growing swiftly enough, what can you do to increase your growth velocity and therefore valuation? Perhaps you could\u2026 buy a whole bunch of other game devs or publishers!<\/p>\n<h2>The four tiers of game company rollup structure<\/h2>\n<p>Now, I hasten to add that I don\u2019t think what any game companies buying other companies are doing is \u2018fundamentally wrong\u2019, per se. Especially not if you actually can get \u2018synergies\u2019 through purchases – hopefully not just cost savings, but also ways to make your customers happier – and make your business run better.<\/p>\n<p>There are just varying levels of transparency around the actual profitability of the parent company, and varying possibilities for the end game in a few years… and I really think it\u2019s worth looking into those. So here we go:<\/p>\n<h2>1. Conventional private companies<\/h2>\n<figure><a href=\"https:\/\/cdn.substack.com\/image\/fetch\/f_auto,q_auto:good,fl_progressive:steep\/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fce2089a4-d91a-4ebd-9bfe-8921d602e3b9_2000x750.png\" target=\"_blank\" rel=\"noopener noreferrer\"><img decoding=\"async\" alt data-attrs=\"{"src":"https:\/\/bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com\/public\/images\/ce2089a4-d91a-4ebd-9bfe-8921d602e3b9_2000x750.png","height":546,"width":1456,"resizeWidth":null,"bytes":130617,"alt":null,"title":null,"type":"image\/png","href":null}\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-2.png\" width=\"600\"><\/a><\/figure>\n<p>Some of the acquisitions we\u2019re seeing are just from private companies who are doing well – <a href=\"https:\/\/devolverdigital.com\/propaganda\/croteam-and-devolver-got-hitched\">Devolver buying long-time partner & Serious Sam dev Croteam<\/a> being one of them.<\/p>\n<p>I don\u2019t think Devolver is issuing shares or has talked about valuations internally (though I could be very wrong!) I think it just has a lot of leftover money because of Fall Guys\u2019 massive success, so decided to pay out and buy a partner.<\/p>\n<p>So that\u2019s one cleaner type of consolidation that I see. \u2018Excess company profit, let\u2019s buy another company to partner with them better long-term and reward them\u2019. (Another debt-based version of this would be \u2018we borrow money from a single investor or a bank to make acquisitions\u2019. Debt is very cheap right now and can be paid back gradually, like a mortgage. All fairly conventional stuff.)<\/p>\n<h2>2. Private equity<\/h2>\n<figure><a href=\"https:\/\/cdn.substack.com\/image\/fetch\/f_auto,q_auto:good,fl_progressive:steep\/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F68a935ef-215d-4913-a4a5-7b757d750adb_700x375.jpeg\" target=\"_blank\" rel=\"noopener noreferrer\"><img decoding=\"async\" alt data-attrs=\"{"src":"https:\/\/bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com\/public\/images\/68a935ef-215d-4913-a4a5-7b757d750adb_700x375.jpeg","height":375,"width":700,"resizeWidth":null,"bytes":39627,"alt":null,"title":null,"type":"image\/jpeg","href":null}\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-2.jpg\" width=\"600\"><\/a><\/figure>\n<p>So, private equity are investment funds that generally – historically – have bought and restructured troubled companies to maximize profits, and then either re-sold them or took them public. (Private equity has sometimes <a href=\"https:\/\/www.thegentlemansjournal.com\/article\/asset-stripping-work\/\">had a bad reputation for \u2018asset-stripping\u2019<\/a>, and they\u2019ve been ruthless at times on costs.)<\/p>\n<p>Private equity is definitely more interested in video games than it used to be, in part because of the public performance of \u2018growth stocks\u2019. (If you can take a company public without it needing to be super profitable but still get an excellent valuation, why asset strip it?)<\/p>\n<p>A good example of this in the video game space is Curve Digital (Human Fall Flat), which was acquired by by NorthEdge Capital <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2019-10-14-northedge-capital-acquires-curve-digital-parent-catalis\">in a deal worth \u00a390 million<\/a> in late 2019, and has been making multiple acquisitions recently, including <a href=\"https:\/\/www.gamasutra.com\/view\/news\/373027\/Curve_Digital_acquires_For_the_King_developer_IronOak_Games.php\">For The King dev IronOak Games<\/a> and, semi-indirectly, <a href=\"https:\/\/www.gamasutra.com\/view\/news\/338807\/Bomber_Crew_dev_Runner_Deck_acquired_by_Catalis.php\">Bomber Crew developer Runner Deck<\/a>.)<\/p>\n<p>Curve is <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2020-12-07-sega-and-tencent-veteran-john-clark-named-curve-digital-ceo#:~:text=Sega%20and%20Tencent%20veteran%20John,Curve%20Digital%20CEO%20%7C%20GamesIndustry.biz\">now discussing going public<\/a>, an obvious private equity end-game – though I\u2019m sure it wouldn\u2019t mind being acquired before then, if it\u2019s a better end result.<\/p>\n<p>And I will note that Curve, like a lot of the UK companies we\u2019re about to discuss, is growing and profitable, at least according to its official comments. They may be borrowing money to do limited acquisitions in hopes of a good ROI down the road, but it\u2019s a milder version of things we\u2019ll see later. And it makes sense to pick up valued dev partners and bring them in-house & pick up all the royalties on subsequent games.<\/p>\n<p>Given that high-profile public UK game companies like Codemasters, which has <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2020-11-23-crowded-field-of-racers-drives-codemasters-revenues-up\">done a good job of pushing profits recently<\/a> after many workmanlike years, can get acquired by Electronic Arts for $1.2 billion (at more than 30x profit!), you can see why the hotness of the market is tempting right now. Small profits can still mean high valuations.<\/p>\n<h2>3. Public companies in the U.S. or U.K.<\/h2>\n<figure><a href=\"https:\/\/cdn.substack.com\/image\/fetch\/f_auto,q_auto:good,fl_progressive:steep\/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F2c435558-bd99-4e3d-8f7d-150a6ed762b5_1200x630.jpeg\" target=\"_blank\" rel=\"noopener noreferrer\"><img decoding=\"async\" alt data-attrs=\"{"src":"https:\/\/bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com\/public\/images\/2c435558-bd99-4e3d-8f7d-150a6ed762b5_1200x630.jpeg","height":630,"width":1200,"resizeWidth":null,"bytes":165832,"alt":null,"title":null,"type":"image\/jpeg","href":null}\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-3.jpg\" width=\"600\"><\/a><\/figure>\n<p>So, let\u2019s go to \u2018conventional U.K. and U.S. companies\u2019. The big folks like Electronic Arts (U.S. traded) are seeing soaring valuations because of COVID lockdown, the success of their games, and the general frothiness of the markets.<\/p>\n<p>But these companies still make money and generate cash, even if they sometimes have corporate debt lurking in the background somewhere. And the U.S. and U.K. stock exchanges force public companies to be fairly transparent about how much money they\u2019re actually making every quarter.<\/p>\n<p>So, for smaller U.K.\/U.S. companies wanting to grow quicker or make its owners cash, obviously there\u2019s the big payout when you go public (your shares are suddenly worth a lot of real money!) But what\u2019s an amazing alternative to borrowing lots of money, if you are public? You can issue new shares, and sell those to generate money to do new things like buy new companies.<\/p>\n<p>If you look at <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2018-05-18-team17-expects-gross-proceeds-of-ipo-to-hit-107-5-million\">Team17\u2019s public offering in 2018<\/a>, for example, it was <em>\u201cbased on the issue of 27,325,482 new shares and 37,849,200 existing shares, at a price of \u00a31.65 per share.\u201d <\/em>So, tens of millions created by selling new shares to new investors. Who are happy, since T17\u2019s share price has quadrupled since then, btw.<\/p>\n<p>Due to Team17\u2019s <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2020-09-10-team17-reports-record-h1-revenues-at-38-8m\">increasing revenues and actual profits<\/a> (profit before tax of UKP 13 million), and plenty of cash on hand presumably due to \u2018real\u2019 profits and new share issuances, they have lots of money to play with. (Although, <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2020-01-02-team17-acquires-yippee-entertainment-for-1-4m\">with a couple of exceptions<\/a>, Team 17 is not going on a buying spree.)<\/p>\n<p>One more aggressive public acquisition example here: <a href=\"https:\/\/www.keywordsstudios.com\/\">Keywords Studios<\/a>, which is publicly traded in the UK and has been rolling up tens of video game localization, testing and outsourcing companies, just <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2020-12-15-keywords-acquires-high-voltage-software-for-usd50m\">picked up High Voltage Software for $50 million<\/a>.<\/p>\n<p>This seems a little frothy to me for a veteran dev turned high-end outsourcing studio, though it includes incentives which may not be met and a high possible 2021 earnings target for High Voltage.<\/p>\n<p>Anyhow, Keywords <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2020-05-15-keywords-eyes-acquisition-of-firms-less-able-to-weather-the-disruption-of-covid-19\">recently raised 100 million UKP<\/a> in a share placement, which really cost them nothing to do. And provides the next roll-up funding tranche. Keywords does, however, at least have a good theoretical acquisition synergy pitch – they can be a \u2018one-stop shop\u2019 for everything to do with game services, and their companies can work slickly together.<\/p>\n<p>The point here is – higher stock prices mean higher overall company valuations, even on transparent stock exchanges like the U.S. and the U.K. Which means it\u2019s easy to either borrow a lot of money or issue new shares to create more money to, uh, grow faster and buy more things. Do you see where the financial markets may be encouraging consolidation and \u2018winner takes all\u2019 trends?<\/p>\n<p><em>(Related: I didn\u2019t talk about Xbox\u2019s <a href=\"https:\/\/en.wikipedia.org\/wiki\/Xbox_Game_Studios#Subsidiaries_and_divisions\">massive dev studio spending spree<\/a> yet! They have a U.S. tech giant \u2018daddy\/mommy\u2019 in Microsoft with over $130 billion cash on hand, and generating even more profit every quarter. So as long as these studio pickups help plan Game Pass\u2019 rise to subscription glory, it\u2019s all good.)<\/em><\/p>\n<h2>4. Public companies in markets like Sweden<\/h2>\n<figure><a href=\"https:\/\/cdn.substack.com\/image\/fetch\/f_auto,q_auto:good,fl_progressive:steep\/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F8ce29c7a-096e-4863-a24d-8caa23fe79aa_600x337.jpeg\" target=\"_blank\" rel=\"noopener noreferrer\"><img decoding=\"async\" alt data-attrs=\"{"src":"https:\/\/bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com\/public\/images\/8ce29c7a-096e-4863-a24d-8caa23fe79aa_600x337.jpeg","height":337,"width":600,"resizeWidth":727,"bytes":54970,"alt":null,"title":null,"type":"image\/jpeg","href":null}\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-4.jpg\" width=\"600\"><\/a><\/figure>\n<p>And here\u2019s where we get to the most aggressive Katamari crew of all – the publicly-traded Swedish companies. There are a number of them, including and not limited to <a href=\"https:\/\/embracer.com\/\">Embracer Group<\/a>, <a href=\"https:\/\/www.mtg.com\/\">MTG<\/a>, <a href=\"https:\/\/www.stillfront.com\/en\/\">Stillfront<\/a>, and <a href=\"https:\/\/www.enadglobal7.com\/\">EG7<\/a>.<\/p>\n<p>And what\u2019s really interesting about them is that they\u2019re not really pushing a traditional \u2018synergy case\u2019 for combining game companies as much as just saying \u2018no, we\u2019re going to buy a bunch of stuff\u2019. (EG7\u2019s latest financial report has far more references to M&A than synergy, for example.)<\/p>\n<p>As to why they are so aggressive, I was amused to see <a href=\"https:\/\/listingcenter.nasdaq.com\/assets\/Listing_Guide_to_Nasdaq_First_North.pdf\">this brochure for the NASDAQ First North stock exchange<\/a> say: <em>\u201cIn Sweden, there is a long tradition of self-regulation in the securities market, which serves as an alternative or complement to legislation.\u201d<\/em><\/p>\n<p>So, a fairly relaxed market, in other words – and certainly fine with companies issuing lots of stock and taking on debt to keep buying and expanding, rather than being very profitable with long-established products and returning dividends to shareholders. (Mind you, most of the world seems to be like that. I\u2019m just noting that these companies seem to be on the bleeding edge of this trend.)<\/p>\n<p>And the way earnings need to be stated in Sweden aren\u2019t quite as direct as the major markets. For example, I tried <a href=\"https:\/\/embracer.com\/wp-content\/uploads\/2020\/11\/1336474.pdf\">reading Embracer\u2019s financials<\/a>, as a former EIC of Gamasutra who regularly wrote up quarterly earnings from big U.S. and U.K. game companies, and they are not that easy to grok\/understand for me past the top-line numbers.<\/p>\n<p>The up-front revenue and profit from acquired companies is clear. But under the hood, there\u2019s some extremely complex amortization of game projects and even some IP valuation and amortization. But overall, it seems like \u2018paying companies with our shares and issuing new shares\u2019 – with some debt borrowing – is the chief funder of big new acquisitions at Embracer and likely all of these Swedish public game companies. <em>(It\u2019s like <a href=\"https:\/\/www.youtube.com\/watch?v=K49QOM_B8dA\">a non-stop fountain<\/a>! Because the valuations are so bullish, issuing new shares is \u2018free\u2019 if you do it gradually\u2026)<\/em><\/p>\n<p>Moving elsewhere, let\u2019s focus on <a href=\"https:\/\/www.enadglobal7.com\/\">EnadGlobal7 (EG7)<\/a> for a second, maybe the most aggressive of the lot. EG7 <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2020-12-01-eg7-acquires-daybreak\">bought Everquest publisher Daybreak for $300 million<\/a> the other week, including lots of stock, and Mechwarrior dev Piranha Games for <a href=\"https:\/\/www.gamesindustry.biz\/articles\/2020-11-25-piranha-games-acquired-by-enad-global-7\">anywhere between $25 million and $70 million<\/a> depending on long-term incentives just before that.<\/p>\n<p>I\u2019m not really qualified to talk about the absolute details of those particular deals. But I notice that <a href=\"https:\/\/deconstructoroffun.cmail20.com\/t\/ViewEmail\/t\/ADC3E1ED172BC81C2540EF23F30FEDED\/DE0F08D381B6C6F7F99AA49ED5AF8B9E\">the Deconstructor Of Fun crew did so<\/a> on a recent podcast transcription, and those folks are whizzes at this type of thing.<\/p>\n<p>Adam Telfer commented that what used to happen, acquisition-wise was <em>\u201c\u2026capturing a bunch of lower tier devs at a discount and helping them grow if you can acquire them cost effectively. But that\u2019s not what\u2019s happening in 2020\u2026 lower tier studios are getting snapped up at frothy multiples based on inflated rev\u2026 this isn\u2019t bargain shopping.\u201d<\/em><\/p>\n<p>And here\u2019s Joakim Achren, in particular re: the Daybreak acquisition, which has a lot of older MMOs in it: <em>\u201cYou’ve got a handful of Swedish public companies that specialize in consolidation. You’ve got opportunistic gaming studio owners.. Match these two and in the short term, things will look glamorous\u2026 In a few years, these studios [like Daybreak] need to start making new titles\u2026 the jury is still out [whether] any acquired studios create value from new games.\u201d<\/em><\/p>\n<p>So, the theme is willingness to back \u2018growth stocks\u2019 from companies whose massive \u2018rollup\u2019 sprees are funded by new share issuances or corporate debt – even minus any substantial synergy cases. And it reaches its peak in the Swedish market with some of these recent deals.<\/p>\n<p>I admit this opinion piece is colored by my annoyance over the state of inequality and capitalism – and my simultaneous knowledge about how it works, oh no. But as for what\u2019s happening in the long-term with this style of roll-up company model, I\u2019ve got no idea. Embracer <a href=\"https:\/\/www.tweaktown.com\/news\/72744\/thq-nordic-raises-161-million-for-new-studio-and-ip-acquisitions\/index.html\">raised another $161 million for acquisitions earlier this year<\/a> without any problem. And the share dilutions aren\u2019t affecting share prices right now. Plus – the companies being bought are mainly – in themselves – profitable.<\/p>\n<p>So, yep – I can\u2019t see a hole in this model until the stock market no longer (over?) values growth stocks, or if one of the companies gets overaggressive and loses investor confidence somehow (see: Starbreeze). So I guess this consolidation boom is just going to ride until it can\u2019t ride no more\u2026<\/p>\n<p><em>[Thanks for reading this! <a href=\"https:\/\/www.gamasutra.com\/cdn-cgi\/l\/email-protection#a8dbc1c5c7c6e8cfc9c5cdccc1dbcbc7decdda86cbc7\">Feedback, corrections and opinions <\/a>welcome. As always, we\u2019re <a href=\"http:\/\/www.gamediscover.co\/\">GameDiscoverCo<\/a>, a new agency based around one simple issue: how do players find, buy and enjoy your premium PC or console game. You can now <strong><a href=\"https:\/\/gamediscoverability.substack.com\/subscribe\">subscribe to GameDiscoverCo Plus<\/a><\/strong> to get <a href=\"https:\/\/gamediscoverability.substack.com\/p\/gamediscoverco-plus-subscribe-today\">access to exclusive newsletters, interactive daily rankings of every unreleased Steam game<\/a>, and lots more besides!]<\/em><\/p>\n<\/p><\/div>\n<hr>\n<div class=\"hide-phone\">\n<h3>Related Jobs<\/h3>\n<div class=\"stories_item\">\n<div class=\"thumb\"><a href=\"https:\/\/jobs.gamasutra.com\/job\/senior-concept-artist-bellevue-washington-34717\"><img decoding=\"async\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-5.jpg\" alt=\"Sucker Punch Productions\" width=\"120\"><\/a><\/div>\n<\/p><\/div>\n<div class=\"stories_item\">\n<div class=\"thumb\"><a href=\"https:\/\/jobs.gamasutra.com\/job\/junior-technical-designer-bellevue-washington-34716\"><img decoding=\"async\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-5.jpg\" alt=\"Sucker Punch Productions\" width=\"120\"><\/a><\/div>\n<\/p><\/div>\n<div class=\"stories_item\">\n<div class=\"thumb\"><a href=\"https:\/\/jobs.gamasutra.com\/job\/associate-art-director-vanguard-espoo-34715\"><img decoding=\"async\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-3.gif\" alt=\"Remedy Entertainment\" width=\"120\"><\/a><\/div>\n<\/p><\/div>\n<div class=\"stories_item\">\n<div class=\"thumb\"><a href=\"https:\/\/jobs.gamasutra.com\/job\/ui-designer-vanguard-espoo-34714\"><img decoding=\"async\" src=\"https:\/\/www.sickgaming.net\/blog\/wp-content\/uploads\/2020\/12\/opinion-game-company-acquisitions-the-growth-stock-bubble-3.gif\" alt=\"Remedy Entertainment\" width=\"120\"><\/a><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<hr><\/div>\n<p> <!-- InstanceEndEditable --> <\/div>\n<p><!--end contentbox-->\n<\/div>\n<p><!--end span-16--> <\/div>\n<p> <br class=\"clear\"> <\/div>\n<p><!--end span-21--> <!--begin right sidebar--> <!--end right sidebar--> <!– <\/div>\n<p> Extra Div –> <!-- Beginning Sync AdSlot 21 for Ad unit Gamasutra\/\/consolepc ### size: [[8,2]] --> <!-- End AdSlot 21 --> <!-- Beginning Sync AdSlot 22 for Ad unit Gamasutra\/\/consolepc ### size: [[8,4]] --> <!-- End AdSlot 22 --> <!-- Beginning Sync AdSlot 23 for Ad unit Gamasutra\/\/consolepc ### size: [[4,4]] --> <!-- End AdSlot 23 --> <br class=\"clear\"><\/p><\/div>\n<p><!--end content-body-wrapper--> <\/div>\n<p><!--end container--><br \/>\n<!--begin footer--> <!--end footer--> <!-- SiteCatalyst code version: H.21.\nCopyright 1996-2010 Adobe, Inc. 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