Gaming scores high with international investors
Our Q2 2024 Media and Marketing Services sector report reported that gaming transactions were the most popular sub-sector of TV, film and entertainment for acquirers, and we certainly expect 2025 to be a very busy year in the video gaming sector.
The UK gaming sector has seen high levels of M&A activity across recent years as larger players raced to consolidate the market and the industry gained increased interest from offshore and private equity investors.
In late 2023, the BFI reported that overseas entities now owned more than 50% of UK game developers. This growth in foreign ownership has been fuelled by the UK’s global reputation for creativity, strong talent pool and an established gaming ecosystem. This makes it an attractive target for overseas investment.
Since publishing our Q2 2024 Media and Marketing Services sector report, we have seen this trend continue with the acquisition of Leamington Spa-based Third Kind Games by Virtuos. Virtuos, a Singapore-headquartered video game development company, commented that the acquisition will enhance its “AAA co-development capabilities and establish a new foothold for Virtuos in the UK”.
Owners of businesses looking to maximise their proceeds through a sale process should optimise the business for exit and sale. Part of this is to understand the tax implications for the business and its owners. Moore Kingston Smith’s tax team has extensive experience in advising on M&A transactions as well as on tax incentives for game developers, such as the video games expenditure credits, which can be beneficial at any stage of a company’s journey. For help in maximising game development tax incentives, please click here.
Keywords Studios has been a serial acquirer of gaming developers. In August 2024, Moore Kingston Smith advised the shareholders of Wushu Studios on its sale to Keywords Studios. Wushu Studios is a Liverpool-based work-for-hire studio that has worked on such key projects as Forza Horizon 5 and Baldur’s Gate 3. Keywords Studios was itself the subject of a bid by Swedish private equity firm EQT AB in a £2.1 billion deal.
Some of the key drivers of this market consolidation are the increasing cost of game development and the need to remain competitive by enhancing capabilities and achieving economies of scale.
“As increased competition continues to drive consolidation in the gaming sector, we encourage anyone thinking about a future exit to start planning as early as possible – be clear on what you want to achieve and what your eventual exit strategy will be. You can start putting processes in place years before you exit that will significantly improve the value of your gaming business,” says Paul Winterflood, Partner and Head of Media Corporate Finance, Moore Kingston Smith.
We are also seeing increased interest in media and marketing companies with exposure to the gaming industry. In June, social and influencer agency Kairos Group announced it was rebranding as NewGen, following a multi-million-pound investment from BGF. Founded in 2015, Kairos Group is known for high-impact marketing campaigns targeting Gen Z and video gaming audiences.
Having attended the recent Gamescom 2024 in Cologne, we observe the gaming sector ramping up for what insiders expect to be a busy 2025. Major AAA releases, such as Rockstar’s latest Grand Theft Auto game, and new hardware from Nintendo are expected to lift the entire industry to a growth rate of 2.5% a year to reach revenue levels of £8.9 billion [i] by 2030.
If you are an investor, founder or adviser wanting to learn more about the gaming industry or if you would like to explore your options, please get in touch with us.
