Authors: Sebastian Lawrence and Grace Baiju | Technology Investment Banking

The global Video Gaming market has boomed in recent years, with games like Fortnite capturing millions of daily players. As our latest report shows, deal flow has remained strong through the pandemic, and has not showed any signs of slowing down.

When it announced the $68.7 billion acquisition of video game company Activision Blizzard this January, Microsoft made the market sit up and take note.

The largest acquisition ever made by a technology company, the deal turned Microsoft into the third largest gaming company in the world by giving it ownership of franchises such as “World of Warcraft”, “Call of Duty”, and “Candy Crush”. Announcing the news, Microsoft CEO Satya Nadella said that gaming “is the most dynamic and exciting category in entertainment across all platforms today”, and will be central to the development of the metaverse.

Microsoft is not alone in its excitement about the future of entertainment. The Video Gaming market is rapidly expanding in terms of deal flow, with the past two years seeing healthy amounts of activity despite challenging economic conditions.

That’s why, notwithstanding a difficult IPO market, we expect gaming to be one of the sectors that rebounds quickly as public markets re-open. We also anticipate that M&A activity will remain active as the industry continues to consolidate.

Like many sectors, gaming is adapting to a changing world.

As our latest market update finds, some of the latest trends have been beneficial to gaming companies. With consumers spending more time gaming, the number of global players has been growing steadily.

There has also been more consolidation. It’s not just the world’s largest technology companies like Microsoft that are interested in the sector – the last few years have seen a wave of M&A activity by other trade players and private equity firms.

Nevertheless, there are a few challenges ahead. Video gaming is expected to feel the effects of inflation on consumer decisions – after all, lower disposable income is likely to be a drag on game sales. That said, the industry’s subscription models are likely to prove more resilient than purchases of individual games.

How do investors value gaming companies?

There has been a wave of dealmaking for Video Gaming companies across both private and public markets. 2021 saw roughly 30% more deals and an average 45% increase in transaction value from 2020.

For Video Gaming businesses that are looking to build a premium valuation, it’s important to note that investors tend to look at both financial and non-financial metrics. Bread-and-butter financial metrics such as revenue and earnings growth are obviously crucial, but when it comes to gaming there are plenty of other factors that potential investors are likely to consider.

With strong tailwinds such as the fast growth of mobile gaming, expectations for the Video Gaming sector are buoyant. As the second half of the year begins, investors may find that the game has just begun.

Read our report for more insight.