But Could It Lead to MORE Acquisitions In The Smaller End of The market?

The Federal Trade Commission has filed suit to stop the $69 billion acquisition of Activision Blizzard by Microsoft, a deal that was first announced this past January. The FTC believes the deal would harm competition in the space, and as a result, cause harm to consumers.

If the deal is approved, as the Commission says, it would “Enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.”

According to Holly Vedova, Director of the FTC’s Bureau of Competition, “Microsoft has already shown that it can and will withhold content from its gaming rivals. Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets.”

The estimated closing date on the acquisition is June 30, 2023, but this lawsuit could either delay the closing, or completely void the deal.

However, should the deal indeed go through, it would be the single largest video game industry acquisition of all time, dwarfing Take-Two Interactive’s $12.7 billion acquisition of Zynga.

Interestingly, Phil Spencer, Microsoft’s CEO of Gaming, said earlier this year that the company may not be done with acquiring other gaming companies, regardless of the regulatory issues with the ATVI deal.

Speaking with CNBC in mid-September, he said “This is such a competitive market, I don’t think we get to press pause on anything.”

Sony and Tencent, two of Microsoft’s largest competitors, have been on acquisition sprees of their own, recently teaming up to acquire 14.09% and 16.25% of FromSoftware, respectively. Then, within a week of this deal, Tencent announced a 49.9% stake in French gaming company, Ubisoft for $296 million.

Spencer’s response to the competition: “We strive to be a major player here…” Adding, Microsoft will continue to hunt for more gaming assets.

Could an FTC victory over Microsoft lead to more M&A
in the smaller end of the video game market?

Should the FTC succeed in halting the Activision acquisition, Microsoft, and potentially other gaming giants, may be forced to turn their M&A sights on the smaller end of the video game market to help avoid “anti-trust” scrutiny.

If this happens, the consolidation we’ve seen over the past two years could potentially be reconcentrated on video game assets in the sub-$1 billion market-cap space…

And there are a lot of them. While it’s not apples-to-apples, in order to match the “size” of the Activision deal, Microsoft would have to acquire 69 new companies, each valued at $1 billion each.

Of course, this would constitute fantastic news for investors in the smaller end of the market, as companies on the receiving end of buyouts have often been the recipient of some hefty premiums.

But Microsoft is not the only big video game company that’s committed to continued “growth-by-acquisition” …. And may not be the only video game giant facing the possibility of being regulated into acquiring smaller targets for growth.

As CEO of Sony Interactive Gaming, Jim Ryan, noted earlier this summer, “We’ve been extremely active in the area of M&A and investment. The purpose of these investments is to increase our core strength at PlayStation Studios, but also to acquire expertise in areas of game development where historically we have not had a significant presence…

“New IP is the lifeblood of all entertainment. In terms of future M&A activity, the answer to that is we are not at all finished with our strategy of trying to grow PlayStation Studios inorganically…

“And to the extent that potential targets fit with our strategy, to the extent that potential targets allow us to accelerate the way in which we are able to deliver on our strategy, we will certainly consider farther M&A activity to add to our business portfolio.”

In the video game industry, growth is the game.

Discover a company with fantastic IP and patented technology in the video game industry, HERE

OR, read more about the FTC vs. Microsoft lawsuit, HERE

Source: https://fortune.com/2022/12/08/ftc-block-microsoft-activision-blizzard-acquisition-antitrust/