EA Pops A Cap In The Competition

The games may be casual, but the price for the company isn't.

Electronic Arts has finally announced their acquisition of casual games publisher PopCap (Bejeweled, Plants Vs. Zombies) for a cool $650 million in cash and $100 million in EA stock, along with some performance bonuses for the next year or two that could bring the value of the deal up to $1.3 billion. Not bad for casual games.

EA released a presentation for their shareholders showing some interesting marketing data concerning PopCap and EA and some of the competition (*cough*Zynga*cough*), which is posted here.  Among other things, it notes that the Daily Average Users of EA and PopCap combined are more than 10 million... which is rather a distant number two to Zynga's 53 million DAU. You have to start somewhere, I guess.

EA clearly sees this deal as an important step in expanding their horizons. They're hoping to take their brands and spread them across every platform, with every sort of revenue model, and connect gamers across platforms. It's an ambitious strategy, but it makes sense if you're looking to get the best growth possibilities out of your vast IP holdings. They've bitten off a big bite, and now they have to show they can chew, swallow, and excrete some golden profits in the next few years. (OK, maybe I did push that metaphor one metabolic step too far.)

Analysts are applauding the move, and at least one says it shows how myopic Activision looks for staying well away from any sort of mobile or social gaming because they think it might go away soon. Have they bothered to look at console software sales figures for the industry over the past three years? I guess they're content to have a bigger share of a shrinking pond, but they really out to check out the river nearby.

EA's clearly hoping PopCap can create more successful casual games, and help bring EA's brands to casual gamers (and vice versa). EA makes no secret of their ambitions to rule the gaming world. They see themselves as playing a much bigger game than Zynga, and they see Zynga's reliance on Facebook as a weakness that will limit Zynga's growth in the future. Or, at least, provide EA with a competitive edge. That presumes, of course, that Zynga has no plans to do anything about that, which would seem to be underestimating them.

What does this mean for other developers? Many of the larger ones may become acquisition targets, if they aren't already. Of course, that presumes that a developer is willing to be bought, and can set a reasonable price. This is clearly not the case with Rovio, developers of Angry Birds. Oh, they sound like they're open to an acquisition, but they think they're worth more than $1 billion.

I think they should try to avoid those powerful hallucinogens... Maybe they should have more than one game before they start asking for a billion dollars. Maybe even more than one successful game. Needless to say, I don't think anyone's rushing to write them a check.

PopCap Games Being Acquired... By Who?

Time to pop a cork, not just a cap, when you sell your company for over $1 billion.

Word is coming from TechCrunch that PopCap Games, makers of such hit games as Bejeweled and Plants Vs. Zombies, is being acquired, with the purchase price rumored to be north of $1 billion dollars. The big question is, who's the lucky (and wealthy!) buyer? There's no shortage of suspects, but one name that springs to mind right away, Zynga, is not in fact the buyer. Though Zynga did look closely at PopCap, in the end they decided the price tag was a little too much for them. PopCap's revenues are said to be in the range of $100 to $150 million annually, which puts the purchase price well over a 10x multiple... which is very pricey as these sorts of deals go (a 3x multiple is considered a standard valuation).

If Zynga's not the buyer, who does that leave? Well, there's... EA, who's certainly not averse to growing by acquisition. But that purchase price is a significant chunk of their $7.9 billion valuation. So it may be too rich for them... then again, they've been eyeing Take 2, so they are not opposed to spending a lot on an acquisition if they think it's a worthwhile strategic move. I'm not sure that PopCap is worthy of such a healthy valuation, though.

Activision, of course, could really use some diversification... they are basically nowhere in casual, social, or mobile gaming, which are the high-growth areas of the industry (traditional games being in negative growth for the past three years). Or perhaps an Asian company like TenCent wants to get into the Western market in a bigger way.

I expect the answers to be revealed over the next week or so. It'll be interesting to see who shows up as the mystery buyer.