PODCAST REVIEW: M&A Master Class: Chris Petrovic Teaches Acquiring Great Gaming Companies — Deconstructor of Fun

8 min readNov 13, 2023

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The Hub Short Take:

Chris Petrovic, Chief Business Officer at FunPlus, shares his insights on mergers and acquisitions (M&A) in the gaming industry. He discusses the reasons why companies engage in M&A, such as buying revenue, profit, audience, expertise, or placing an early bet. Petrovic emphasizes the importance of alignment through bilateral consensus and the challenges of post-merger integration and cultural fit. He also highlights the role of advisors in the M&A process and the need for professionalism in deal-making. Petrovic concludes by discussing the current trends in the M&A landscape and predicts a return to normalcy in the near future.

Key Takeaways:

Companies engage in M&A to buy revenue, profit, audience, expertise, or place an early bet.
Alignment through bilateral consensus is crucial for successful M&A.
Post-merger integration and cultural fit are major challenges in M&A.
Advisors play a vital role in the M&A process, providing guidance and support.
Professionalism is essential in deal-making to build trust and credibility.

Quotes:

“Great companies are bought, not sold.”
“Integration is the most difficult part of the M&A process.”
“Professionalizing your back office is crucial for a successful M&A process.”
“Cultural fit and reputation are important factors in M&A success.”
“The easier part of the process is the deal itself; the more difficult part is the implementation of the integration framework.”

The Guest:

Chris Petrovic is the Chief Business Officer and Board Member at FunPlus. He has a wealth of experience in the gaming industry, having previously held senior positions at Zynga, Kabam, and GameStop. Chris has been involved in numerous mergers and acquisitions throughout his career, including the acquisitions of Gram Games, Small Giant Games, Peak Games, and Rollic by Zynga.

The Host:

Deconstructor of Fun is created by games professionals for games professionals. Learn about the business side of games through relevant, insightful, and entertaining content.

Deeper Summary:

Petrovic begins by addressing the consolidation at the top in the gaming industry, mentioning the Microsoft and Take Two deals as examples. However, he notes that there hasn’t been much consolidation at the top due to uncertainty in the mobile space, valuations, access to capital, and other factors. He predicts a return to normalcy in the M&A landscape once these factors align.

He then discusses the current state of M&A deals, noting that the velocity and dollar numbers are lower than they used to be. Buyers are in capital preservation mode, while sellers may not be in a position of strength in terms of valuation or portfolio performance. Petrovic believes that a return to normalcy will occur when the recession is fully behind us, the markets calm down, and the cost of capital goes down.

Petrovic also shares his thoughts on the long-term viability of gaming and the growth opportunities in the industry. He believes that gaming will always be the largest sector of entertainment, with mobile gaming being the largest sector within gaming. He predicts that the gaming industry will resemble the entertainment industry, with conglomerate game companies driving the market and creating the next generation of entertainment companies.

In response to a question about the less tangible factors considered in evaluating the long-term value of an acquisition, Petrovic emphasizes the importance of the people involved. He looks for teams that have worked together before, have a track record of success and failure, and are a natural fit within the organization. He believes that the quality of the team and their ability to lead and create great games for a global audience are crucial factors in the long-term success of an acquisition.

Petrovic concludes by addressing the question of Zinga’s acquisition by Take Two being the worst acquisition in gaming history. He acknowledges that the timing of the deal relative to the early stages of IDFA and the industry’s uncertainty about its impact may have had negative consequences. However, he believes that Zinga’s access to the impacts of IDFA and its multi-faceted entry points into the marketing landscape will ultimately lead to success. He sees the acquisition as an opportunity for Zinga to unlock the value of Take Two’s IP portfolio and create tremendous value in the long run.

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The Art of Mergers and Acquisitions:

Mergers and acquisitions have long been a part of the gaming industry, as well as other R&D-intensive fields. These deals allow companies to bring in new blood and innovative businesses that can accelerate their growth and provide a competitive edge. The motivations behind M&A can vary, but they often revolve around factors such as acquiring revenue, profit, audience, expertise, or making an early bet on a promising startup.

Chris emphasizes the importance of aligning the M&A strategy with the company’s overall goals and vision. At Zynga, the focus was on acquiring companies that had the potential to become “forever franchises” or were already on their way to achieving that status. This strategic alignment ensured that the acquisitions would contribute to long-term value creation for all stakeholders, including employees, shareholders, and players.

According to Chris, “It really came down to what we were talking about earlier, which is the people and you know what is the quality of the team that had that was operating at the time had they worked together before did they have success and failure together have they applied those successes and failures to their future business and do we see them being a natural fit within our organization…making sure that it’s a fit that people are not just in it for the payout that should just be a natural outcome of great execution and great partnership, especially on the earnout side.”

The Role of Advisors in Mergers and Acquisitions

Chris highlights the crucial role of advisors, such as investment banks, in the M&A process. These advisors act as buffers and liaisons between the buyer and the seller, facilitating the flow of information and ensuring a smooth transaction. They provide expertise, guidance, and resources to help companies prepare for the M&A process and navigate the complexities of due diligence, data rooms, and negotiations.

He advises founders to bring in trusted advisors to assist with the M&A process, as it allows them to focus on running their business while the advisors handle the intricacies of the deal. By investing in professionalizing their back office and leveraging the expertise of advisors, founders can increase their chances of a successful acquisition.

Chris explains, “You have to be a little bit of a people person if you’re working in M&A completely…which is ironic because the core engine of M&A is analytics…but ultimately, the people aspect of it is supremely important.”

Overcoming Challenges in Mergers and Acquisitions

Chris acknowledges that M&A deals come with their fair share of challenges. One of the key challenges is achieving consensus among all stakeholders, both within the acquiring company and the target company. This requires open and transparent communication, addressing any concerns or issues, and ensuring that everyone is aligned with the strategic goals of the deal.

Another challenge lies in the post-merger integration and cultural fit between the two companies. Chris emphasizes the importance of integration and tailoring the approach based on the specific circumstances of each deal. He shares his experience at Zynga, where they differentiated between asset purchases and earn-out-based deals. Asset purchases involved absorbing the acquired company into the existing structure, while earn-out-based deals required a lighter touch to allow the acquired company to maintain its independence and execute on its vision.

Chris explains, “Cultural fit is a critical factor in the success of M&A deals…By investing in interpersonal relationships and demonstrating a genuine interest in the target company’s culture, the acquiring company can foster a positive and productive post-acquisition environment.”

The Work Week of an M&A Team

Chris provides insights into the work week of an M&A team, which involves a combination of data analysis, game playing, networking, and deal execution. The team spends time analyzing market data, tracking companies, and assessing their potential for acquisition. Since they are buying gaming companies, they also play games to gain a consumer perspective and understand the gaming landscape. Networking is a crucial aspect of the job, as it allows the team to build relationships with potential targets and industry professionals. The team also dedicates time to deal execution, including preparing presentations, conducting due diligence, and negotiating terms.

Trends in the Current M&A Landscape

Chris reflects on the current trends in the M&A landscape, particularly in the gaming industry. He notes that the market has seen a decrease in the velocity and size of deals, primarily due to factors such as uncertainty, valuations, and access to capital. Companies are focused on capital preservation, leading to smaller-scale deals and a cautious approach to M&A. However, Chris predicts that as the market stabilizes and conditions improve, there will be a return to larger-scale deals and increased M&A activity.

Conclusion and Future Outlook

In conclusion, mergers and acquisitions play a vital role in the gaming industry, allowing companies to drive growth, acquire new revenue streams, and expand their capabilities. The success of M&A deals depends on strategic alignment, open communication, cultural fit, and effective post-merger integration. By investing in professionalizing their back office, leveraging trusted advisors, and focusing on long-term value creation, founders can increase their chances of a successful acquisition. While the current M&A landscape may be characterized by caution and smaller deals, the future holds the promise of renewed activity and larger-scale transactions.

As the gaming industry continues to evolve, M&A will remain a key strategy for companies looking to stay competitive and drive innovation. By understanding the trends, challenges, and best practices in M&A, companies can navigate the complex landscape and unlock new opportunities for growth and success.

*Note: This article is a comprehensive summary of the podcast episode with Chris Petrovic. All quotes used in this article are verbatim and directly sourced.

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