Video game producer Activision Blizzard announced that it will acquire King Digital Entertainment (King) for USD 5.9 billion. King is known for its mobile game Candy Crush which is among the top-grossing apps since an extended period of time. Activision is mostly known for its console and PC-games such as Call of Duty and World of Warcraft. The deal may give Activision a leading position on all platforms and underlines our previous statement that mobile games are far more than a one-hit wonder.
Activision will pay USD 18 per share, which means a premium of about 20% of the closing price at the end of October. The deal will be fully cash, although Activision will use a USD 2.3 billion loan to finance the deal. Surprisingly, Activision is not taking advantage of its increased share price, which is up 70% year-to-date.
King is valued at 14 times projected 2016 earnings and 8 times projected 2016 EBITDA. Remarkably, the price Activision offers is significantly below King’s IPO price back in March 2014. At that time, the IPO was priced at USD 22.50 a share, valuing King at USD 7.1 billion. Therefore, the stock listing was certainly not a success for shareholders of the mobile game maker. On the other hand, founders Melvyn Morris, Riccardo Zacconi (current CEO) and Sebastian Knutsson (Chief Creative Officer) may cash decently with 35.6 million respectively 31.2 million and 17.1 million shares. Also private equity firm Apax gets a good exit. The firm took a stake in 2005 for USD 43 million. At USD 18, the stake of 141 million shares is valued at USD 2.5 billion.
Activision’s acquisition of King makes sense from a couple of perspectives. First of all, the game portfolio of King adds a large number of mobile games, broadening Activision’s revenue breakdown. Mobile games are still relatively new and show large potential. In addition, King’s games, such as the famous Candy Crush, are very interesting from a demographics perspective. The games attract numerous players from different ages, both genders and users which are not playing on consoles or the PC. So the deal might be all about demographics. Due to easy accessibility and friendliness (more on that below) of mobile games, Activision could add users to its client base it couldn’t reach before.
For example, the addition of elder players might be lucrative. Newspaper WSJ pointed out that the biggest spenders in the Apple Stores are in the age group 65+ years. This indicates that this group is probably willing to pay more for the usage of mobile devices, and potentially for apps such as mobile games as well. After integrating King, the company targets all population groups and may have a significant advantage over other game producers.
However, when comparing Candy Crush to Call of Duty or World of Warcraft, a different attitude towards gaming and potentially culture is visible. Whereas the Activision games show a tough attitude, King’s Candy Crush and Bubble Witch look very nice and ‘happy’. There doesn’t seem to be much overlap in the product range. One would almost say the games are opposites. This could be viewed as a strength in the product offering. But one might wonder if the culture at King is comparable with that of Activision. There could be some challenges in the integration of both companies. But for sure gamers shouldn’t worry about a rosy Call of Duty or violent Bubble Witches in the future.