Mobile game company Zynga ZNGA is being acquired by Take-Two Interactive Software TTWO in a move to combine two gaming companies. Here’s what investors should know and what could be ahead for the gaming sector.
What Happened: Take-Two is acquiring Zynga at an enterprise value of $12.7 billion. The acquisition will consist of a buyout of $9.86 per ZNGA share, made up of $6.36 in TTWO shares and $3.50 in cash.
The acquisition price represents a premium of 64% to Zynga’s share price at close on Friday, Jan. 7, 2022.
Take-Two said the acquisition establishes the company as "one of the largest publishers of mobile games, the fastest-growing segment of the interactive entertainment industry.”
“We are thrilled to announce our transformative transaction with Zynga, which significantly diversifies our business and establishes our leadership position in mobile, the fastest growing segment of the interactive entertainment industry,” Take-Two CEO Strauss Zelnick said.
The acquisition unites Take-Two’s console and PC franchises with Zynga’s mobile game focused portfolio, diversifying the gaming giant going forward.
Related Link: 3 Upcoming Catalysts That Could Lift Zynga's Stock
What’s Next: Going forward, Take-Two will be one of the largest publicly traded gaming companies worldwide, with $6.1 billion in net bookings over a twelve-month pro forma period ending Sep. 30, 2021.
The combined company is expected to have 14% net bookings growth annually over the next three years.
Take-Two sees $100 million in annual cost synergies coming from the deal within the first two years. An opportunity of $500 million of annual net bookings is also expected from the acquisition.
“With this transformative transaction, we begin a new journey which will allow us to create even better games, reach larger audiences and achieve significant growth as a leader in the next era of gaming,” Zynga CEO Frank Gibeau said.
Mobile gaming is the fastest growing portion of the video game sector, with $136 billion in gross bookings in 2021. Mobile gaming is expected to grow at a rate of 8% annually over the next three years.
While Take-Two is a leader in PC and console games, it does have several popular mobile games including “Dragon City,” “Monster Legends,” “Top Eleven” and “WWE SuperCard,” which could benefit from the mobile gaming expertise of Zynga.
Take-Two said Monday that Zynga’s mobile developers will also pursue creating mobile games based on the portfolio of existing Take-Two games.
Zynga’s Chartboost advertising platform was highlighted Monday as a way for Take-Two to acquire new users specifically in growth markets that include Asia, India and the Middle East.
The acquisition of Zynga comes ahead of the mobile gaming studio's launch of a Star Wars game in 2022 through a partnership with The Walt Disney Co DIS. Zynga is also pursuing the integration of non-fungible tokens in gaming, which could become a key for Take-Two moving forward as well.
More Acquisitions?: A “go-shop provision” is offered for Zynga for the company to solicit, receive and evaluate alternative proposals during the 45-day period expiring on Feb. 24, 2022. Rivals to Take-Two like Electronic Arts EA and Activision Blizzard ATVI would be the most likely candidates to submit an improved deal for Zynga based on the valuation.
In February 2021, video game company Electronic Arts acquired mobile gaming company Glu Mobile. Activision acquired another mobile game company, “Candy Crush” owner King Digital, in 2015 in a major push into mobile games.
The acquisition of Zynga could put a spotlight on other companies that are heavily focused on the mobile gaming sector. Playtika Holding PLTK owns the “Bingo Blitz” franchise, and shares are trading below the IPO price of $27 from nearly one year ago.
Roblox Corp RBLX could be another candidate to attract attention from a video game company, given its dominant position in the mobile gaming space with its hit “Roblox” game. A market capitalization of nearly $50 billion for Roblox would make a merger more likely than an outright acquisition by a gaming or entertainment peer.
Another company to watch on the heels of the Zynga news is Tencent Holdings TCEHY, which is the largest video game publisher in the world. The company could look to unload some of its smaller mobile game companies or pursue a public offering for some of its portfolio companies, including “Fortnite” maker Epic Games as valuations for gaming companies heat up.
Price Action: ZNGA shares are up almost 50% to $8.93 on Monday.
TTWO shares are down 10% to $148.00 on Monday.
A provision in the acquisition could see the acquisition amount change based on the 20-day volume weighted average price (VWAP) of TTWO shares.
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Photo: Courtesy of EFFIE YANG on Flickr
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