A group led by Chinese internet company Tencent has agreed to acquire an 84 percent stake in Finland-based mobile games developer Supercell for $8.6 billion. The stake, acquired from Japan’s Softbank, values Supercell at $10.2 billion. Following the close of the deal, Tencent expects to hold a voting interest worth 50 percent of the new controlling consortium. Supercell’s existing management will continue to lead the company.
Chinese internet companies going global
This agreement is the latest in a series of investments in, and acquisitions of, Western mobile companies by leading Chinese companies. Tencent, the owner of U.S.-based online games operator Riot Games, has invested in messaging apps Kik and Snapchat, mobile games companies Glu Mobile and Miniclip, as part of more than 20 international investments since 2014. Earlier acquisitions were centred on PC games companies, but nearly all recent deals have been related to the mobile and app-based markets where growth opportunities exist.
Norway-based browser and mobile advertising company Opera was acquired by a Chinese consortium, led by Kunlun and Qihoo, in a $1.2 billion deal earlier this year.
Supercell has already been successful in China, but it has relied on distribution partnerships with Tencent competitor Kunlun. Supercell’s success on a global scale with strong performance in all major international markets, rather than its position in China, is likely what makes it an attractive proposition for Tencent.
Increasing maturity of the mobile games market
IHS forecasts that consumers will spend almost $40 billion on mobile games in 2016, making it the biggest market opportunity for games; but overall growth in the market is slowing, as smartphone adoption nears the saturation point in many mature markets. Consolidation in the market is a consequence of this new mobile games market maturity; other notable deals include Activision’s 2015 acquisition of Candy Crush publisher King.
Quality not quantity is crucial in mobile games
Founded in 2010, Supercell is notable for only having released four titles: Clash of Clans, Hay Day, Boom Beach, and most recently Clash Royale. Supercell’s focus on maintaining and monetising its audience across a few key hit titles shows how mobile games companies can leverage the freemium business model to sustain and continue to monetise the mobile games audience for a long time.
Good return for Softbank will help its debt position
Japan’s Softbank first invested in Supercell in 2013 at an initial valuation of around $3 billion. It increased its stake in 2015, but since then it has shifted its strategy to divest many of its international holdings to pay off debts related to losses from its acquisition of U.S. mobile operator Sprint. Softbank also plans to sell $7.9 billion of its shares in Alibaba and most of its shares in Japanese mobile games publisher, and former Supercell investor, GungHo.
Supercell management continues to deliver
The difficulty of delivering continued success in the mobile games market through the release of new games properties, even for those companies with previous break-out hits, highlights the value of Supercell to Tencent. Supercell's management has continued to deliver financial success with new games -- most recently Clash Royale -- as the company concentrates on a low volume of high quality releases. Supercell has also been selective enough in its design choices to successfully build a truly global business with its games properties, which very few games companies manage to deliver.
Building a mobile e-sports capabilityTencent is investing significantly in the mobile e-sports opportunity. In March the company confirmed it was to release ten mobile e-sports titles and would hold hundreds of mobile e-sports tournaments during 2016 within China. The acquisition of Supercell gives Tencent access to Clash Royale, which is establishing itself as an international mobile e-sports title and gives the company access to a broader mobile e-sports opportunity outside of its home market.