M&A Alert—May 23, 2017
Supercell acquires a majority stake in gaming company Space Ape for $55.8 million.
Author: Steve Payne & John Ascher-Roberts
Transaction Size: $55.8mm
On May 23, 2017, Supercell Oy, maker of top mobile game Clash of Clans, announced an agreement to acquire a 62% stake of London-based mobile games studio Space Ape for $55.8 million at an equity valuation of $90 million.
Space Ape is an award winning mobile free-to-play game developer. Its three build-and-battle titles include Samurai Siege, Rival Kingdoms, and Transformers: Earth Wars. Those three titles have propelled Space Ape’s growth in revenue and users. Since the release of their Transformers game at the beginning of 2015, Space Apes has grown from 10 million to 35 million downloads. Over that same period, revenues grew from $25 million to $92 million in 2016, with Q4 2016 profits of $5 million. Space Ape just released Fastlane, a more casual arcade shooter and its first non-build-and-battle title. They have three more titles in development, including a mobile kart racing game previewed at GDC. Its competitors include Electronics Arts, King Digital, Rovio Entertainment, Social Point, Take-Two Interactive, Wooga, and Zynga.
John Earner, CEO, and Simon Hade, COO, co-founded the London-based company in 2012. It received $21 million in funding from Accel Partners, Connect Ventures (Sitar Teli), Initial Capital (Ken Lamb), Northzone (Jeppe Zink), Sega Ventures, and Silicon Valley Bank. Space Ape currently has 105 employees. The company will continue to operate independently.
Founded in 2010 in Helsinki, Finland, Supercell Oy develops multiplayer mobile games for tablets and smartphones. Its games include combat strategy, epic strategy, and farm games. It has launched four mobile games: Clash of Clans, Clash Royale, Boom Beach, and Hay Day. Clash of Clans has been a top-earning game since 2012 and is arguably the top grossing app in the world. The company generated $2.3 billion in revenue in 2016, which was flat year-over-year. However, its EBIT rose from $897 million in 2015 to $1 billion in 2016.
Tencent acquired an 84% stake in Supercell for $8.6 billion at an equity value of $10.2 billion in September of 2016 (4.3x 2015 revenue) from Softbank. Tencent has a market capitalization of $279 billion.
Supercell is acquiring 62% of Space Ape for $55.8 million at an equity valuation of $90 million. This consideration will be used to buy out Space Ape’s venture investors, and management until still hold 38% of the company.
Transaction Value: $55.8mm
Equity Value: $90mm
EV / 2016 Revenue 1.0x
Comparable transactions include Take-Two Interactive’s acquisition of Social Point in February of 2017 for $250mm (2.8x LTM rev, covered here), Jam City’s acquisition of TinyCo in July 2016 (undisclosed), Vivendi’s acquisition of Gameloft in February 2016 for $535mm (2.5x LTM rev), Activision’s acquisition of King Digital in November 2015 for $5.8bn (2.3x LTM rev), Churchill Downs’ acquisition of Big Fish Games in November 2014 for $835mm (2.7x LTM rev, covered here), and Electronic Arts’ acquisition of PopCap Games in July 2011 for $1.3bn (13x LTM rev).
This investment gives Supercell an opportunity to reverse its slowing revenue growth with another strong development studio and slate of titles. (Space Ape’s CEO Earner commented about how this deal gives his company a “turbocharge” towards creating a billion-dollar game.) In addition, Supercell now has access to the creative talent and game development legacy of London and the U.K. For Space Ape’s investors, it’s a chance to exit the company as the remaining 38% ownership will be solely owned by the company’s founders and employees.
Architect Partners’ Observations
Mobile games hit a new record by generating more than $41 billion in worldwide revenue in 2016, up 18 percent from a year ago, according to research by SuperData Research and Unity Technologies. This means that mobile games now account for half of the global digital games market.
There are some strong cultural synergies that potentially catalyzed this deal. In an interview with VentureBeat, John Earner discussed in detail the two companies’ similar passions and working environments. He also revealed that the two had previously been in preliminary acquisition talks in early 2016 before the Tencent deal put them on pause.
This is the first material acquisition for Supercell. Interestingly, it used the same majority-ownership structure that both Softbank and then Tencent used when they controlled Supercell.