Yana Vesnina, M&A Manager at ZiMAD, shares the most common business proposals that game publishers encounter and the challenges associated with them in her column for Game World Observer.
We frequently come across six types of proposals in the market.
1. Selling the entire studio and all its assets
The owner offers to sell their entire business asset. Such proposals typically arise from a loss of interest in the business. It can be driven by the ever-increasing development costs or issues with the core business, particularly if the game company operates outside of its area of expertise. However, there may also be cases where the owner seeks an exit strategy, seeing an opportunity to recoup their initial investment.
If the business owner happens to be a developer or an investor specializing in the games industry, they may also aim to secure additional funding for development through the sale of assets, assuming it’s not an exit strategy. In such cases, they may also consider proposals for mergers, acquisitions, or new investment rounds.
Selling the entire company is always a complex strategic decision. To navigate potential hurdles, the buyer should seek expert legal support, be prepared to steer the business forward, and possess extensive expertise in the field.
2. Selling the project with the team transferred to a new business owner
This scenario is less common than selling the project while retaining the employees, as owners are not always willing to hand over their carefully crafted team to a third party. However, such proposals regularly appear in the market.
In these types of deals, the seller has to split up the team, while the buyer must integrate it into their own business model. Both processes can be challenging, and their consequences may not yield the desired outcome (it is not always possible to foresee how the remaining part of the team will react to the deal or whether the transferred part of the team will integrate smoothly into a new structure).
3. Selling a recently launched project
It is common practice to try to sell projects that have recently been released worldwide (no more than six months prior to the deal). Typically, these are games with mediocre performance metrics. At best, they have a low return on investment, and at worst, they are unable to generate enough revenue to cover the costs of user acquisition.
The decision to sell a project can be a business-oriented choice (e.g., “It didn’t work out, so let’s sell it and move on to the next project”) or a desperate move when the team has exhausted its resources or lacks the expertise to refine the game.
In the latter case, we have witnessed instances where the seller (if both the project and team seemed promising to the buyer) was open to considering not only selling the game but also integrating their team into another studio.
When purchasing a controversial project, the final cost should cover expenses for further development, efforts to improve performance metrics, and much more. This implies either a significant decrease in deal value for the seller or its rejection.
4. Selling an unreleased project
Many studios, especially those focused on the hypercasual niche, are willing to sell new projects that are still in development and have even successfully passed initial testing.
Today, companies are primarily interested in purchasing projects with an existing audience. Selling a game with no users or very few users is not easy. Before making a decision, buyers require certain guarantees that the project will continue to grow or at least generate the desired revenue.
5. Selling a financially demanding project
Sometimes a studio undertakes an ambitious project and invests a significant amount of time in its development. However, negotiations with the initially supportive publisher fall through, or they fail to find a publisher. The studio realizes it is not ready to finish the project and seeks a partner open to M&A deals.
The seller needs to find a buyer with relevant experience in the genre who is not only financially prepared to invest in a project that is still far from completion but can also assist the team with their expertise.
6. Selling a project developed by a non-specialized team
It is also common for studios to sell projects that do not align with their portfolio strategies or expertise. This happens when a studio attempts to enter a new niche and faces failure, seeking to offset the losses.
For example, many studios that were primarily focused on hypercasual games now have merge titles in their portfolios. However, most of these studios lack experience in dealing with casual games, which leads to significant challenges during the operational phase.
Therefore, selling the project to a publisher or another developer capable of successfully managing the product becomes the optimal choice for some studios.
At the start, the studio often develops the project for its own purposes without considering the possibility of selling it in the future. As a result, they must either be ready to prepare the project for transfer (which requires additional investment) or lower the price (if there is no detailed documentation, code comments, etc.).
To be fair, the latter applies to any deal when only the project is being transferred.
Today’s market confirms that all the mentioned assets are in demand, but quite often, most of the available offers do not meet sellers’ expectations.
In conclusion, let me briefly outline what game publishers, as buyers, typically expect from deals.
It is evident that each publisher has their own business strategy and objectives. However, the ultimate goal remains the same — to increase revenue and profit.
Consequently, during a deal, their primary focus is on whether the purchase can help them generate higher earnings.
Therefore, their main considerations include the following:
- How much has been spent and invested in the asset?
- How soon can the asset recoup the investment?
- How much additional investment is required for the asset to recover the deal?
- Does the asset include any intellectual property (IP), and how can the value of these IPs be assessed separately? Do they generate licensing royalties?
- What is the size of the active audience for the asset, and what percentage of the audience consists of paying users?