Game Studios Are Hot Acquisition Targets in the Race to Mobile and Social

More acquisitions are expected to follow in the gaming space after an intense bidding war for PopCap.

Last week, PopCap accepted Electronic Arts’ bid of $1.3 billion, including earn-outs, and opted to turn down a smaller — but all-cash — $1 billion offer from Zynga.

With that kind of dough raining down on the games industry, it’s obvious that more blockbuster purchases will ensue.

If that’s the case, the question is who will be next?

First, it’s important to understand why there’s a sense of urgency. Right now, nontraditional digital gaming platforms, like mobile and social, are really starting to take off, and game publishers need new content and expertise to be a player on those platforms.

“The general conversations have increased,” said Kushal Saha, the managing director of the Information Technology practice at Cascadia Capital, a Seattle-based investment bank. “We are seeing a lot more activity in financings as well. When you have a $1.3 billion acquisition, that really creates a lot of tailwinds from investors and strategics.”

Tim Chang, a partner at Norwest Venture Partners, has a theory as to who will be the most active in the next wave of acquisitions: It will be companies from China and Japan that are trying to get a foothold in the lucrative U.S. games market.

Here are just some of the recent transactions: Tencent, the giant Chinese Web holding company, bought Los Angeles-based Riot Games for about $400 million; OpenFeint was purchased by Japan-based Gree for $100 million in April; and Japan-based DeNA bought San Francisco-based ngmoco for $400 million late last year.

Specifically, he says these companies will be looking to buy game studios, which can create content for new platforms.

Ngmoco is building a mobile social network, and while it develops some games in-house, DeNA will need much more content to be successful. Same goes for Gree, which purchased OpenFeint, a mobile social platform that has 100 million players signed up.

Gree’s Senior Product Manager Jori Pearsall said that Gree is trying hard to get up and running in the U.S., where they have hired about 40 employees who are independent from OpenFeint.

Pearsall says its first game is expected to launch soon on the OpenFeint mobile social network.

In other words, first comes distribution. Next up: content.

One example of this already taking place is the merger between 6waves and Lolapps, which was announced earlier this week. San Francisco-based Lolapps is making social games for Facebook, while Hong Kong-based 6waves has been more focused on building a publishing platform.

Together, the two will have a publishing platform with its own games.

One of the companies that is being considered an obvious acquisition target is Glu Mobile, which is making social games for smartphones and tablets. Since the PopCap acquisition was announced, Glu’s stock has been trading close to $6 a share, up from $5.20 early last week. It is now trading at $5.64.

Are people sniffing around Glu?

“Nothing is off the table. We’ll do what’s best for the shareholders. We have a vision and a strategy and we are executing on the goal of transitioning to one of the top three feature phone companies to our goal of being one of the top freemium tablet and smartphone games company,” said Michael Breslin, Glu’s VP of marketing.

Other potential acquirers are in the U.S., ranging from content companies like Time Warner and Disney to other game makers like Activision, THQ or Ubisoft. Zynga has been acquiring more than one company every month for nearly a year. Google could even be a candidate if it’s truly serious about its Google+ games network.

Other companies for sale that would have the content and the talent include any of the independent studios in the top 20 on Facebook or iOS, ranging from Crowdstar to RockYou, or even a virtual world like Linden Lab.

Photo Credit: Jason Pratt.

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