Acquiring and selling games: Trends and strategies in 2024

Yana Vesnina is the M&A manager at ZiMAD.

In the fast-evolving gaming industry, buying and selling games has become a crucial strategy for companies aiming to stay competitive and grow their market presence.

ZiMAD entered the game acquisition space in 2020, and since then, the company has been actively diversifying its portfolio by exploring opportunities across various game and app genres.Today, mergers and acquisitions are not just occasional activities for ZiMAD but integral components of its growth strategy. 

Let’s explore the main types of game M&A strategies in 2024, along with the motives and goals behind these deals:

1. Acquiring games for quick payback (up to six months): These deals focus on games with strong marketing growth potential, aiming for a return on investment within six to twelve months.

Typically, the acquired game is designed to leverage the targeted traffic of existing titles in the company's portfolio, keeping marketing expenses low. The boosted audience for the new game helps quickly recover the resources invested and generates additional revenue to fuel further business growth.

2. Buying titles with a stable daily active user (DAU) base: Games that have maintained a steady audience over the years, particularly casual titles, provide a reliable income stream.

The revenue per user (RPU) in such games tends to show positive trends when companies actively engage with the existing DAU and introduce fresh content or activities. Players are less likely to switch to other games because they've already invested significant time and money.

After acquiring such a title, the new owner often focuses on improving average revenue per daily active user (ARPDAU) through added in-app purchases, enhanced monetisation options, and live-ops participation. This strategy offers room for experimentation both within the game and in traffic acquisition and scaling.

3. Diversifying the portfolio with games or apps from different genres: Expanding a game portfolio by adding lifestyle and gaming apps is a popular approach. Some companies take a horizontal view, acquiring children’s games or lifestyle apps that appeal to similar audiences - such as organisers, sleep trackers, pedometers, relaxation apps, photo editors, and reading apps.

These acquisitions don’t directly compete with each other, but they can share users with similar interests, helping to safeguard the company's portfolio against market fluctuations.

4. Acquiring an audience ecosystem: Some companies buy another publisher’s or studio’s portfolio as a cohesive ecosystem because the individual apps may not perform as well on their own.

In these cases, the focus is on seamless cross-promotional traffic integration between the existing portfolio and the newly acquired one. The purchased portfolio often serves as a source of targeted traffic, making it more cost-effective than running traditional user acquisition campaigns.

5. Acquiring clean code for further development: When purchasing clean code with proper documentation, intellectual property rights to the original product usually remain with the previous owner. The buyer acquires the foundation and monetisation framework to build upon, enabling a more predictable estimate of the product's primary metrics. This approach speeds up redevelopment and reskinning.

Sometimes, the acquisition includes visual assets for training AI systems, which is beneficial for games requiring extensive content production, such as narrative-driven titles. Essentially, the buyer obtains the code, documentation, and visual assets as a base for further development, saving considerable time in creating a new product.

Changing business models

Alongside acquisition strategies, business models and the composition of key players involved in deal negotiations have shifted significantly in recent years.

While decisions two years ago were primarily based on metrics like 1-30 day retention rates (RRs), return on ad spend (ROAS), cost per install (CPI), and potential product marketing strategies, today's focus has shifted towards daily active users (DAU), profit and loss (PnL) statements, and the multiples at which products are bought and sold. 

Buyers no longer prioritise high retention rates and low CPI - satisfactory levels are often sufficient. Mature products usually come with established marketing strategies, and buyers may hesitate to invest unless they can identify new growth opportunities.

There is now a greater emphasis on achieving a faster return on investment, typically within two to three years, with four years being the maximum. Although there are inflated multiples in the market, only highly stable companies can afford such long-term plays. 

Additionally, many companies prefer to keep their audience within their existing portfolio genre. For example, you have a strong mid-core shooters portfolio and decide to buy match-3 or colourings.

Acquiring a game outside the portfolio can pose significant challenges, as it may not justify the investment in terms of cost and effort. In such cases, sellers may be hesitant to sell, especially if they can recoup their investment within two years. The only factor that might compel a seller to proceed with the sale is an urgent need for liquidity; otherwise, the multiples often remain overvalued. 

While metrics are still crucial in evaluating games, even titles with excellent metrics can face dealbreakers due to overpricing or gaps in the PnL. Ultimately, the PnL and the projected return on investment timeframe will be the decisive factors in assessing any mobile game acquisition.

The perfect match: How an engine influences the success of a gaming deal 

When considering the acquisition strategies mentioned earlier, the choice of game engine, its documentation, and its current state play a critical role in the success of a deal. With many engines available in the market, some companies prefer using their proprietary solutions. But why does the game’s engine matter in acquisitions?

The ideal scenario is that the acquiring team already works with the same engine. If not, the options are to hire specialists with experience in that specific engine -which would raise the overall cost of the deal - or to rewrite the game using the team’s preferred engine.

The main challenge isn't just expanding the staff or extending the payback period; it’s the risk of losing the product’s audience during the transition. This risk is especially significant in acquisitions focused on audience-linked deals, cross-promotional opportunities, or daily active users.

Many games developed between 2010 and 2020 were built using engines like Cocos, Native, or others. These engines have traditionally been more user-friendly and well-suited for certain genres of classic games.

Players often spend years on these games, and transitioning them to new tools or engines can result in losing the existing user base, jeopardising the entire investment. Whether the game is worth the effort and risk depends on the potential for retaining the audience during the transition.

How the AI boom has impacted the M&A market

The rise of AI technologies is reshaping the landscape of mergers and acquisitions  in the gaming industry.

As AI continues to advance, simpler game genres like Sudoku, chess, or basic hypercasual titles could soon be created by AI tools like ChatGPT, significantly reducing the value of such code.

Some studios have already embraced AI for content production, such as generating levels in narrative games. As a result, the most valuable asset in games will continue to be the established audience that has been cultivated over time.

The ability to rapidly generate code and content enables developers to maintain two versions of a game simultaneously: the original version, which appeals to a longstanding audience that may resist significant changes, and a new, updated version featuring a reskinned game for newer players. By and large, two versions help to acquire and retain more users with different age ranges and test different features more carelessly. 

Conclusion

Considering the above factors, it can be summarised that buying and selling games has become a separate M&A policy with its own goals and objectives, as opposed to buying entire studios.

Buying and selling games can strengthen portfolios and balance out weaknesses by putting them in the hands of other players, who can capitalise on them. ZiMAD continues to diversify its portfolio by buying and selling games.