U.S.-based video game giant Electronic Arts (EA) enter into an agreement to acquire U.S.-based mobile game developer Glu Mobile for $2.1B in enterprise value and equity value of $2.4B, including a ~$364m net cash on the balance.
The price consists of a 36% premium to Glu Mobile share price of $9.19 on February 5, 2021, which is about $12.5 in cash for each ordinary share. The total transaction is planned to be financed by EA’s cash on hand.
Based on Glu Mobile financial performance (Revenue of $540.5m and EBITDA of $29.5m FY 2020), the transaction multiplies are 3.9x EV/Revenue and 71.2x EV/EBITDA (or 24.2x EV/ adj. EBITDA). The acquisition is expected to be finished in the Q2’21
Strategic Rationale
- EA further expands into the mobile space with the acquisition of Glu’s diversified portfolio across sports, RPG, lifestyle, casual, and mid-core genres
- Though Electronic Arts is primarily known for its PC&console activity, many of its sports titles have their mobile versions. Moreover, EA’s mobile sports games four-year CAGR is 24%, which is notably higher than that of PC&console sports games (13%)
- A huge team of 780 employees on board will significantly increase EA’s mobile game development expertise, especially its products scaling capabilities
- Glu Mobile’s portfolio seems to perfectly fit EA’s range of lifestyle and sports titles:
Such games as Design Home, Covet Fashion, and Kim Kardashian: Hollywood will complement The Sims mobile
Tap Sports Baseball, Deer Hunter, and Tap Sports Fishing will be a great add-on to EA’s vast portfolio of spots titles, including FIFA, Madden NFL, NHL, NBA, and UFC
- Revenue from PC&console premium games publishing is tied closely to the new product releases. That is why the expansion into the mobile F2P space can help EA to stabilize their financials
Glu Mobile’s History
- Founded in 2001, Glu has first made its name as a publisher of mobile premium games, made for old mobile phone models, characterized by the slow network, phone keypad controls, and single-player games
- In 2007, Glu mobile went public and shortly reached $14+ price per share, which remains one of the highest Glu share price levels up to date. After not meeting the market expectations, the price dropped.
- In the following years, the market started its shift towards F2P smartphone games, characterized by different monetization system, multiplayer focus, switch from keyboards to touchscreen and accelerometer, as well as a whole new technical level of games. This led Glu Mobile to search for new ways of doing its business.
- In 2011, Glu Mobile laid a foundation for its acquisition strategy, buying Blammo Games, which would later be known for Kim Kardashian: Hollywood casual game. During the next several years, Glu mobile made several deals, acquiring one popular IP Deer Hunter (2012), and three studios, that would become crucial for Glu’s inorganic growth: Pick 6 Studios (2013), PlayFirst (2013), and Crowdstar (2016)
Major Concerns
- Based on Capital IQ consensus financials forecast, forward multiples are 18.7x EV/EBITDA’21 and 14.4x EV/EBITDA’22 (or 10.2x EV/adj. EBITDA’22)
- A few months ago, Electronic Arts announced the acquisition of UK-based racing games developer Codemasters Group (LON: CDM) for a total consideration of $1.2B. This means, in 2021, EA will have to integrate two large businesses into its ecosystem. So there’s a high possibility that it will take some time before the synergy effect will finally take place
- In 2011, EA acquired PopCap Games, a developer behind popular indie title Plants vs Zombies, for up to $1.3B. However, now we can see that neither the franchise nor the company, manage to significantly contribute to EA’s performance
Glu Mobile’s Financial Highlights
- For 2020, Glu Mobile reported $540.5m of revenue, compared to $411.4m in 2019, and $366.6m in 2018
- Bookings, which include revenue that is yet to be counted, increased by 32.4% compared to $423.3m in 2019 and reached $560m in 2020
- In 2020 Glu Mobile’ net income reached $20.4m demonstrating a 129.2% growth compared to $8.9m in 2019
- Approximately 56.5% of sales are coming from App Store, while Google Play contributes about 33%
- U.S. generates about 80% of total revenue, while EMEA brings approximately 10.5%
Business Highlights
- 2.9m DAU and 14m MAU in Q3’20
- 98m downloads LTM Sep’20 with ~77m of in-app transactions
- ~27% Bookings CAGR over the 2016-2020 period
- 30%+ of Bookings generated by Design Home title over the first nine months of 2020
- Team of 780 employees with 5 offices in the U.S., Canada, and India
- More than 80% of downloads coming from North America
