The largest acquisition in the history of the gaming industry has been finalized. Take-Two, the maker of Grand Theft and 2k games, announced on Monday that it would buy social gaming giant Zynga for $12.7 billion in cash and stock. Based on Zynga’s stock price on Friday, the $9.86 per share offer represents a premium of 64%; each Zynga share could earn $3.50 in cash and $6.36 worth of Take-Two stock.
The transaction is expected to close on June 30 this year. Following the acquisition, Zynga will continue to operate as an independent subsidiary of Take-Two, continue to be led by its current CEO and occupy two seats on Take-Two’s board of directors.
If the acquisition is successfully completed, it will also be the largest acquisition in the history of the gaming industry, surpassing Tencent’s $8.6 billion acquisition of Supercell in 2016 and Microsoft’s $8.1 billion acquisition of Bethsda’s parent company ZeniMax Media in 2020.
Netizens who still remember the “stealing vegetables” game may know Zynga. The popular stealing vegetable games from Kaixin.com and Tencent Games in China all imitated the successful model of this social game giant on Facebook. Zynga was founded in San Francisco in 2007. The founder, Mark Pincus, was also an early investor in Facebook. Zynga’s name and logo are from Pincus’ pet bulldog, Zinga.
Of course, with such a dog-loving founder, Zynga also welcomes employees to bring their pets to work. More than a decade ago, Zynga was once the hottest startup in San Francisco, with employee treatment comparable to Google, and the most interesting company culture. The company headquarters, also known as the “Dog House”, has everything from a game room, basketball court, and gym.
In 2009, Zynga launched the farm game FarmVille on Facebook. The idea of stealing vegetables was all the rage. It achieved 10 million daily users in just six weeks, and more than 80 million users the following year. In 2010, Zynga launched the city game CityVille, which was a huge success again. It reached 100 million monthly active users in just 41 days. In December 2011, Zynga was successfully listed on Nasdaq.
However, success in the social gaming space comes and goes quickly. In 2013 alone, Zynga fell into the predicament of declining users and revenue. The number of users decreased by nearly half compared with 2012, and it had to start layoffs and business contraction. Pinkus also had to step down as CEO and bring in Don Mattrick, president of Microsoft’s interactive entertainment division.
But in less than two years, Zynga, whose business had not improved, changed its coach again, and introduced Frank Gibeau, the head of EA’s mobile division, as CEO until now. In the past few years, Zynga has continued to focus on social games on mobile phones. Its main successful game products include “Zynga Poker” and “Words with Friends 2”.
Shares of Take-Two tumbled 15% and Zynga’s shares soared 45% after the deal was announced today. The market’s main concern is that Take-Two is overpaying for Zynga. Zynga’s stock has fallen 40% in the past year’s bull market in U.S. stocks and is now at its lowest point in the past five years. A major reason for the stock’s slump was Apple’s tightening of mobile privacy controls, which prevented Zynga’s targeted advertising business from accessing user data.
Console gaming giant Take-Two bought Zynga, apparently with the goal of expanding its mobile business. Take-Two CEO Strauss Zelnick said that after the acquisition of Zynga, more than half of the company’s net booking revenue will come from the mobile field, and the total number of users will exceed 1 billion.
While Grand Theft Auto is one of the most successful console games in the world, with more than 155 million cumulative sales over the past eight years, Take-Two is still under pressure from slow growth. The company expects fiscal year revenue of $3.35 billion to $3.45 billion.
As smartphones become the Internet and entertainment centers for people around the world, mobile games have gradually become the biggest cake in the game industry. Although Take-Two has achieved great success in console games such as “Grand Theft Auto”, their business on the mobile side has grown slowly, and the mobile game business currently accounts for only 10% of the revenue. Zynga was apparently taken down to gain users in the mobile space and to expand into new free-to-play modes.
In addition, Zynga has a game advertising platform and a blockchain product business in addition to its main game business. Perhaps Take-Two will also consider exploring new business models for launching NFT and blockchain products in the gaming space.
According to Newzoo, a market research company, mobile games currently account for more than half of the total revenue of the global game market. The global mobile game market will grow by 7% to $93 billion in 2021, while the console and PC game markets will grow slowly. NewZoo expects that the growth of the global game market in the next few years will mainly come from mobile games.
Another console game giant, Electronic Arts, has long been actively expanding the mobile game market, successively acquiring PopCap, the developer of Plants vs. Zombies, Respawn, the developer of Titanfall, and Codemasters, the racing game developer; Acquired Glu Mobile and Playdemic, the developer of Golf Clash, for $2.4 billion and $1.4 billion.
It is worth mentioning that in February last year, Electronic Arts beat Take-Two and won Codemaster for $1.2 billion. Perhaps the deal also spurred Take-Two to seek bigger acquisition targets.