Playing the long-game for a happy marriage in mergers and acquisitions
Hear from an M&A expert on 14 key questions in managing M&A deals in apps and games businesses — part of the Apps, Games, & Insights podcast
Authored by Chris Petrovic, SVP and Head of Corporate Strategy, M&A and Business Development for Zynga. Listen to Google’s Apps, Games, & Insights podcast to hear him talk more about mergers and acquisitions for apps and games.
Over the last 20 years, I’ve been fortunate enough to be involved in a broad spectrum of companies and businesses in the technology and interactive entertainment ecosystem: from being an entrepreneur running venture-backed internet startups in the late 90s, to spending time in venture capital post the first internet “bubble”, to helping transition analogue companies (American Greetings, Playboy, Gamestop) to digital. For the majority of these 20 years, I have been working largely in and around the games and mobile ecosystems. I’ve have deployed over $3 billion in acquisition dollars in the sector, in addition to being part of a mobile game company (Kabam) that was acquired in 2016.
Consolidation is a natural part of any fast-growing industry, largely driven by the rising bar to becoming a successful independent company. Much of this is about the cost of doing business from a talent, product and marketing perspective. If you’re leading a successful games company, chances are you’ll get acquisition inquiries. Equally, you might come to the realization that, to achieve the growth you know possible, tapping into the resources of a bigger company makes sense.
In this post, I answer some of the questions you may have around the mergers and acquisitions process. Hopefully, this will arm you with the information you might need to determine if acquisition or merger is the right business decision.
1. When is the right time to think about selling my business?
At some point, you may realize that your organization’s capabilities and scalability need significant investment to achieve your business goals. This is the point when you should ask whether you can reach your goals by finding an investor and raising additional capital, or whether you can see yourself, your team, and your business plugging into a larger entity that can provide the resources you need to grow.
If you look at our recent acquisitions — the board and card division of Peak, Gram Games, Small Giant Games and most recently the rest of Peak — they all took the second approach: they want to make great products and run great services that resonate with audiences around the world and leave the rest to a partner.
2. How do I start the process of finding an acquirer?
The first thing to do is have a discussion with your stakeholders. That may be just you and your team or it may involve shareholders, investors, and others. But it’s important to make sure everyone is on board with the process.
The mergers and acquisitions process can be very time consuming and burdensome. So, next you need to make sure that you’ll have the bandwidth to continue to run your business. This means finding a great advisor — an investment banker, a lawyer, or perhaps one of your investors — that can help with the work and guide you through the process. And, a great advisor should know the marketplace and be able to reach out to potential partners.
3. Should I look for an acquirer sooner or later?
Each acquire has a different risk profile, from those ready to jump in with companies that are pre-product or pre-revenue through to those looking for companies with a track record and the potential to accelerate growth.
Here at Zynga, we are slightly more on the risk-averse side. We bring on companies, teams, and games that are of scale, have been together for a long time, and seen some commercial success.
4. I still want to run my business, is that going to be possible?
With the right partner, it certainly should be possible. For example, here at Zynga we pride ourselves on being able to provide a home for developers where they can continue to do their best work and focus on what they’re passionate about. We make that happen by giving them access to tools, technologies, people, resources, and capital that can accelerate their ambitions. When we bring in successful smart founders, entrepreneurs, game developers, and game makers they teach us about development, teach us about publishing, and keep us at the forefront of innovation. We do our best to create a mutually beneficial environment.
5. What will interest an acquirer the most: my team, my technology, or my games?
If your acquirer is already an established games house they are unlikely to be interested in acquisitions that are purely about technology. For example, Zynga is primarily a Unity shop and is not looking for that type of technology.
Most acquirers are going to be looking for great founders and great teams that have made a game or a series of games that have resonated with an audience. But what we also look for is a smart culture fit. I’ve said before, that while it’s important to start with a quantitative element, the qualitative element is just as important. For example, at Zynga we believe in cultivating relationships to build strong acquisitions. Remember, acquisitions are long-term. Both parties need to make sure that they work well with each other, and understand the similarities and differences in how they approach game creation.
6. What information will an acquirer want?
An acquirer will want to know about you and your team, how you work together, and what drives you. Essentially, they’ll be looking for signs that your business will integrate smoothly into theirs — which could mean anything from creating effective interfaces to complete integration.
They will also want data, more specifically around the KPIs that show your game portfolio has growth potential. Each acquirer is likely to have their own view on the most relevant KPIs: it could be early to mid-retention, late retention, return on ad spend or something else. But, definitely make sure you highlight any metrics that show you are industry-leading or at the top of your class in terms of the market; those are going to be extremely interesting to any acquirer.
Ultimately if you can bring to the table a talented team that creates games with some interesting fundamentals you will pique the interest of an acquirer.
7. How do I gather the data an acquirer needs?
Today, data drives business. From day one, you should set up your business operationally and administratively to create the information flow to support decisions about your business and your games. If you have done this, you will certainly be able to provide the data wanted by your acquirer.
The good news is that most, if not all, game companies tend to track the same data points/KPI’s to inform their decision making, so the focus should be on ensuring robust and secure warehousing of that data for when the time comes.
8. How long will the process take?
Our recent acquisitions of Small Giant and Gram Games took about 18 months from first engagement to the eventual transaction. 18 months may sound like a long time, but let’s remember, there is a lot of work happening behind-the-scenes. There are the intricacies associated with the transaction, assessing management and conducting due diligence.
9. Will I be able to maintain my company or team culture?
That will depend on the acquirer. Companies we acquire here at Zynga effectively run their businesses autonomously. They maintain their identity, culture, and brand. They simply plug themselves into our infrastructure, publishing capabilities, technology capabilities, product management capabilities, and administrative capabilities.
As how you and your team operate is an important part of any acquisition, you’ll find many acquirers will want to help you retain your ways of working.
10. If my acquirer is a public company, what challenges does that create?
A public company has an obligation to its shareholders to accurately report the state of the business. So, there will be things around financial and game data level reporting that are a requirement for the company. Having said that, my experience has been that factors like these that can be perceived as challenges have resulted in operational benefits to the acquired company as their processes and operations become more rigorous.
11. What are the typical approaches to integrating a new team post-deal?
It starts with building a relationship with the management team. Although this relationship-building really starts as the deal is put together. During this process, you should have transparent discussions about the direction for your studio, team, and games. It goes without saying that each deal is different, which in turn means that each approach to integration is different. A lot depends on where the acquired company is in the life cycle of their business — meaning, the earlier the stage they are in the more likely they are to take advantage of the services that the acquiring company provides.
12. How long does it take to know the deal was a good one?
Here at Zynga, we don’t have set time horizons for measuring the success of a deal. There are obviously structures that you put in place that have certain time horizons. But, our view is that an addition to the family is going to be permanent and they’re going to be able to deliver on the next in a great series of games in our portfolio.
However, you are probably going to know quite quickly, during the post-deal integration phase, if the deal is failing. Many people think that the hard work is the deal and once you sign on the dotted line the work has ended. But, in reality, the work is just beginning. Integrating the companies and the teams and building the relationship — making it a living, breathing thing — needs investment every day.
13. What are the warning signs of a deal that isn’t going to work?
If you’ve got your company to the point where someone wants to acquire, you will have created a culture and environment that drives success. If post-deal you are asked to adopt a different philosophy that could undermine what you’ve built and interfere with the magic that has got you this far.
Possibly the biggest red flag is if you are revisiting and squabbling over the terms of the contract after a few months, that is troubling: the goal should be that the day the contract is signed is the last day anyone looks at it.
14. What can you do if things go wrong post deal?
Putting things back on track is all about communication, honesty, and transparency: remembering that it is just as much about building on the good as it is about eliminating the bad.
For example, there was one acquisition I was involved in where literally as we were closing the deal, the game from the company we were acquiring experienced a major issue. Given the relationship that we had built up with the management team up to that point, they were very transparent with us and we didn’t panic. Instead, we pooled resources to identify and solve the issue, and the game has since continued to thrive.
Final thoughts
The mobile game space continues to evolve rapidly. We are seeing popular gaming franchises becoming available across a multitude of platforms. The advent of 5G on mobile, with the possibilities for cloud and streaming games, means there is still a wide scope for innovation.
However, these and other developments will put increasing pressure on smaller developers, by looking at mergers and acquisitions you have the potential to reduce these pressures and level up your game.
Find out more
Listen to Chris Petrovic talk about mergers and acquisitions in more detail on episode 2 of the Apps, Games, & Insights podcast.
What do you think?
Do you have thoughts on mergers and acquisitions for apps and games? Let us know in the comments below or tweet using #AskPlayDev and we’ll reply from @GooglePlayDev, where we regularly share news and tips on how to be successful on Google Play.
