M&A Alert - January 12, 2010
Shanda Games Agrees to Acquire Mochi Media
Transaction Overview
On January 12, 2010, Shanda Games (NASDAQ: GAME) agreed to acquire Mochi Media for $80mm in cash and stock.
Target Description
Mochi Media is a game distribution network, which enables game developers to distribute and monetize their games. Its core product, Mochi Ads, is an ad network which connects game developers with advertisers, providing developers revenue via selling embedded ads and analytical data. As of June 2009, over 100mm people were playing games through Mochi Media. Mochi Media competes with other game and social media monetization networks such as PlaySpan and Jambool. Mochi Media has received $14mm in venture funding since 2008, including an initial $4mm in March of 2008 from Accel Partners, and an additional $10mm from Shasta Partners (Jason Pressman). Founded in 2005 by Jameson Hsu and Bob Ippolito, Mochi Media is based in San Francisco.
Buyer Description
Shanda Games (NASDAQ: GAME), a holding company and a subsidiary of Shanda Interactive Entertainment (NASDAQ:SNDA) is a Chinese developer of online games. Shanda Games’ core products are massively multi-player online role-playing games (MMPORPG), for which subscribers pay a fee to access. Shanda’s main competitor is the Shenzhen-based Tencent Inc., which recently overtook it in revenue, as well as Blizzard Entertainment, Inc. (U.S.) and Giant Interactive Group (Shanghai). The majority of its revenue comes from online players in China. Shanda Games is based in Shanghai, China and went public in 2009, raising $1b in an IPO, representing the largest stock debut in the year.
Transaction Parameters
The purchase price includes $60mm in cash and $20mm in shares of Shanda Games (NASDAQ: GAME). Although Mochi Media does not disclose its revenue, Jameson Hsu, Mochi Media’s co-founder said it recently became profitable in 2009. Other comparable
game-oriented advertising transactions include Burst Media’s purchase of Giant Realm (ad network focused on 18-34 year old male audience via videogame and entertainment) in November 2009 for $2.5mm at 1.8x revenue, Google’s purchase of AdScape (in-game focused ad network) in March 2007 for $23mm, Microsoft’s purchase of Massive (in-game focused ad network) in May 2006 for approximately $200mm-$400mm, and Fox Interactive’s purchase of IGN Entertainment (a gaming news and information website) in September 2005 for $756mm at 13.0x revenue.
Strategic Rationale
Mochi Media brings incremental monetization capabilities to Shanda’s game offerings. Increasingly, games will incorporate advertising and advertiser supported content as a complementary revenue stream to the outright sale or subscription fees charged. Mochi Media also is part of Shanda’s U.S. expansion strategy. Shanda Games, which currently exports games to Southeast Asia, Korea, Russia, and Europe, is a multinational corporation with its eyes on the U.S. market. Mochi Media, whose motto is “We Don’t Make Games. We Make Games Profitable,” should provide a means of distributing and monetizing a set of games, which Shanda has been preparing for the U.S. market. According to chief executive Diana Li, Shanda Games already has 10 English-language games ready for distribution on the Mochi Media network, which is comprised of over 40,000 websites which host its games.
Architect Partners’ Observations
This transaction is yet another example of the theme of “advertising is the new purchase price”. Advertising will play an increasing role in monetization of digital goods and services in the future. Recent transactions such as Google’s purchase of Admob, Apple’s purchase of Quattro Wireless, NAVTEQ’s purchase of Acuity mobile, Adobe’s purchase of Omniture and Limelight’s purchase of Eyewonder — all fall under this theme.
This transaction also highlights the growing internationalization of the internet | mobile | digital media sectors. While each region has very unique requirements and modes of doing business, we’re likely to continue to see efforts to build businesses that span between historically fairly demarcated markets.