Global mergers and acquisitions (M&A) hit a record high in 2021, primarily fueled by rich investment capital and strong stock markets. This year, M&A activity remains strong, with the gaming industry experiencing a high volume of deals. In fact, according to the global tech investment bank Drake Star, the gaming industry has seen 651 announced and closed deals in the first half of 2022, valued at a whopping $107B-plus.

What is driving the increased M&A activity in gaming?

Certainly, the impact of the pandemic on daily consumer activity has been cited numerous times as a factor for growth in the gaming industry. Notably, investments in augmented and virtual reality (AR/VR) technology are on the rise, and the demand for AR/VR software will likely become an integral part of all major industry operations. Couple shifting user behavior and a growing desire by companies for more digital and data-driven assets, and you have a captive audience of stakeholders to drive the gaming market into a robust and competitive playing field.

With that in mind, no players in this high-stakes arena can dominate the market purely organically. Per Drake Star, industry consolidation from announced M&A activity reached over $95B this year across mobile, PC/console, and esports. And it’s worth pointing out that the top 2022 M&A deal announced thus far is in the gaming space, with Microsoft’s acquisition of Activision Blizzard for $68B. Microsoft will become the third largest gaming company by revenue behind Tencent and Sony if this deal completes. Clearly, Microsoft sees an opportunity to become the go-to platform for gamers worldwide, and it won’t be long before other tech giants seize a chance to have more skin in the game.

Other drivers influencing the rapid growth of the market, therefore, more gaming M&A activity, involve greater mobility and accessibility of games and the proliferation of next-gen innovation. Cloud gaming through smart devices has increased the number of players and their level of engagement exponentially. As a result, incumbents see greater opportunities to capitalize on growth through acquisitions that will bring scale and more ways to gain and monetize IP. And then there’s the metaverse, not yet ubiquitous but has great potential to drive partnerships and monetization strategies that cut across industries.

However, M&A transactions are often complex, particularly when they involve large corporations with hundreds of millions to billions of dollars at stake.

The aforementioned Microsoft-Activision Blizzard deal is far from complete, with challenges involving anti-competitive claims from industry rivals and increasing scrutiny from the Federal Trade Commission (FTC) and other regulatory agencies. Likewise, the FTC recently announced it seeks to block VR giant Meta from acquiring Within Unlimited, alleging that Meta is attempting to expand their VR empire to monopolize the space.

Generally, M&A strategies require time and due diligence into the parties, the assets, and the market. With many major players, new entrants from other industries, evolving innovation, and even a new virtual universe, the gaming industry is approaching an inflection point that will result in numerous M&A opportunities, conflicts, or both for stakeholders and shareholders alike.

What can companies do to prepare for a bright future in gaming?

As the adage goes, “knowledge is power.” To prepare for M&A transactions, counsel should consult with industry, academic, and technical experts who are best equipped to assist with the valuation of patent portfolios and the R&D pipeline in support of an investor, buyer, or seller of a company’s assets or stock. For M&A litigation, these same types of experts can also support (or attack) a company’s valuation in disputes. They can also support an economist’s macro valuation from a more micro-industry/company perspective, based on knowledge of the industry and the technologies at issue. Lastly, in matters regarding regulatory actions, former industry insiders and c-suite executives can discuss standard market procedures while academic experts can discuss general market conditions and competitive practices.

No matter the issue, WIT has teams of gaming experts prepared to address incoming disputes in the space. Our expert teams were created to address what we expect to be the key areas of litigation in emerging technologies, including technology-based M&A, licensing, valuations, portfolio reviews, patent mining, and offensive/defensive acquisition strategy and review.

With M&A on track to disrupt and shape the gaming market in the future, companies have an opportunity to consult with experts today to determine if they will be among the winners or the losers in a race for market dominance.

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