Features of M&A Deals in the Video Game Industry

The most important findings of the last few years include empirical studies on value creation determinants of companies and the efficiency of mergers and acquisitions (M&A). Unlike existing studies that mainly investigate the effect of the company’s financial performance and quality characteristics of M&A transactions on the value of the target company, this paper investigates and measures the relationship between industry-specific factors of video game market (including market segment, supported gaming platform and the company's product line) and company’s value. Based on the analysis of analytical reports and scientific researchers on video games, a comprehensive classification for the market players was developed in order to conduct this investigation. In addition, an efficiency analysis of M&A transactions in the video game market is presented in the paper. In particular, the study uses linear regression and event analysis methods to measure the impact of industry-specific factors and the effectiveness of transactions respectively. Not only the results of the regression models confirm the importance of industry-specific factors, but they provide a better estimate of valuation multiple (EV/Revenue) than simply using such classic qualitative and financial characteristics of transactions, as the type of investor (strategic or financial), the target company's EBITDA margin, etc. Particularly, the following facts were revealed: • video game developers and operators are valued at premium in comparison with other market participants; • companies engaged in the production or maintenance of multiplayer online games get the highest valuation in the market. Meanwhile, the results of event study analysis, which examines the behavior of firms’ stock prices around corporate events, show a steady upward trend in stock returns of acquirers after the announcement of deals. These results are robust to different methods for measuring post-offering abnormal stock returns.