Zynga bought Peak Games for $ 1.8 billion today, making it the largest acquisition in 13 years of the company’s history. As part of the deal, Zynga bought the rest of Istanbul-based Peak Games which it did not purchase in 2017, when the purchase price for Peak’s casual card game studio was $ 100 million.
“The business is a fantastic business,” said Frank Gibeau, CEO of Zynga. “We have known them since the return of the casual menu in 2017. And finally, we got together.”
Zynga funded the transaction with $ 900 million in cash and $ 900 million in company shares. It follows on from previous Zynga acquisitions of 80% of small giant games for $ 560 million in 2018 (Zynga now owns 88%) and the acquisition of Gram Games in 2018 for $ 250 million.
These previous agreements included clauses called bonuses or bonuses granted if the games of the acquired company worked well. Gibeau said these previous agreements had gains because the games were not as well established and carried more risk / reward. But the big games from Peak Games – Toon Blast and Toy Blast – have 12 million active users a day, and those have already reached a large scale.
Zynga itself has more than 30 million daily active users and reported $ 1.3 billion in revenue in 2019. It has approximately 1,800 employees.
In this case, Gibeau said it made more sense to structure the deal in cash and stock, and he said the action would make the 100 employees at Peak Games stay on board.
Gibeau said that in 2017, Peak Games had not been as successful as it is today.
“They were very proud of [their growth] but they realized that to take it to the next level, they wanted to partner, and their venture capitalists were also in a position where they wanted to change, “said Gibeau. “There were people trying to acquire them, in addition to ourselves, so we were fortunate to have a good relationship” with Sidar Sahin, CEO of Peak Games.
Sahin was supportive of Zynga, but he also wanted the studios to have their autonomy and cultural independence, said Gibeau.
Gibeau said Peak Games will operate independently, but Zynga will help if necessary on tasks like data science.
“They saw that through the Small Giant Games and the Gram Games, we were living up to our word” to be helpful and uninterrupted, “said Gibeau.
Discussions started at the end of last year, but everything “has gone haywire in the world,” said Gibeau. Negotiations were to continue under lock and key via online calls.
Gibeau said the deal amount made sense, since Peak Games had around $ 600 million in revenue, and Zynga had typically paid three times as much in revenue in its other deals. He said Peak Games will make a significant contribution to EBITDA (profit before income taxes, depreciation and amortization), although Peak Games is private and does not publicly disclose the exact profits.
“We believe there are opportunities to expand margins,” said Gibeau. “They are working on new projects that will contribute to our new product pipeline.”
Observers predict more gaming acquisitions during the pandemic, as companies team up to overcome the crisis. But this agreement has been in preparation for some time, as mentioned.
“I think consolidation will accelerate,” said Gibeau. “Interactive entertainment companies are quite resilient in the face of an economic downturn or a pandemic, and I would say these are the new social platforms, like Roblox or Minecraft or Words With Friends.”
Zynga still has approximately $ 600 million in cash and may still acquire other companies.
“The meaningful social connection you can get from digital games is really deep,” he said. “And if you have to get away from social media, or if you can’t be with someone, games are the next best thing. Many sectors of the economy are in dire straits, and investors and so on. adjacent companies see gaming as a resilient asset in an era that is truly uncertain. ”
He added, “The company is doing one of the most significant jobs it has ever done. It is entertaining people at a fairly difficult time. We connect people through games, which is our mission. “