By Lucy Chen (University of Melbourne) and Sally Marshall, Max Raso, Valeriya Shreyber (Imperial College London)
Overview of the deal
Acquirer: Electronic Arts (NASDAQ: EA)
Target: Glu Mobile (NASDAQ: GLUU)
Implied Equity Value: $2.4 billion
Total Transaction Size: $2.4 billion
Closed date: 30 June 2021 (expected)
Acquirer advisor: JP Morgan
Target advisors: Goldman Sachs, Morgan Stanley, UBS
In a move to broaden the scale of its mobile games business, game developer Electronic Arts announced on February 8 its agreement to acquire Glu Mobile. Under the agreement, Electronic Arts will pay $12.50 in cash for each share of Glu stock, representing an equity value of $2.4 billion and total enterprise value of $2.1 billion. The price represents a 36% premium to Glu’s closing share price on February 5.
WIth mobile now the biggest and fastest growing gaming platform, the acquisition will help Electronic Arts make a larger push into the smartphone market. Electronic Arts is expected to gain more mobile gaming titles and attract more female players through the deal, as well as expand its nearly half a billion strong player network to reach a more global audience. Upon closing, the transaction is expected to be immediately accretive to Electronic Arts’ total net bookings and grow underlying profitability at the beginning of its first year. The deal follows Electronic Arts’ recent purchase of UK-based video game publisher Codemasters for $1.2 billion.
“Our acquisition of Glu combines amazing teams and deeply-engaging products to create a mobile games leader with proven expertise across many fast-growing genres.” - Andrew Wilson, Electronic Arts CEO
Company Details: (Acquirer - Electronic Arts)
Electronic Arts is a global leader in digital interactive entertainment and the second-largest gaming company in the Americas and Europe by revenue and market cap. The company is involved in developing and distributing games, content and services for consoles, personal computers and mobile devices. EA owns a portfolio of critically acclaimed brands such as ‘The Sims’, ‘EA Sports FIFA’, ‘Need for Speed’ and ‘Plants vs Zombies’.
Founded in 1982, headquartered in Redwood City, California
CEO: Andrew Wilson
Number of employees: 9,800
Market Cap: $41.95 billion (as of 17/02/2021)
EV: $36.32 billion
LTM Revenue: $5.54 billion
LTM EBITDA: $1.54 billion
LTM EV/Revenue: 6.56x
LTM EV/EBITDA: 23.55x
Company Details: (Target - Glu Mobile)
Glu Mobile is a leading developer and publisher of mobile games. Glu holds a diverse portfolio of major mobile game titles such as ‘Kim Kardashian: Hollywood’, ‘Dine Dash Adventures’ and ‘Disney Sorcerer’s Arena’. The company has grown over the years partly through acquisitions of popular games such as ‘Covet Fashion’ and ‘Design Home’.
Founded in 2004, headquartered in San Francisco, California
CEO: Nick Earl
Number of employees: 800
Market Cap: $2.20 billion (as of 17/02/2021)
EV: $1.84 billion
LTM Revenue: $540.5 million
LTM EBITDA: $29.52 million
LTM EV/Revenue: 3.40x
LTM EV/EBITDA: 62.33x
Projections and Assumptions
Despite Electronic Art’s leading portfolio of mobile game products which have accumulated $1.32 billion in bookings over the past year, the company’s mobile business is struggling, seeing bookings drop 10% in 2020, in a market which has seen very fast growth in the past few years. The acquisition of Glu Mobile will enable EA to further diversify its portfolio by doubling the size of EA’s mobile business and aid the company in gaining market share within a fast-growing market, through the addition of approximately 100 million players.
There is already a great deal of compatibility between the two companies and the products that both offer. The businesses follow very similar processes in game development through a focus on creating highly successful games with longevity (potentially due to the fact the head of Glu Mobile is a former Electronic Arts employee), specifically in sports games - a genre they both excel in. Such similarities will hopefully make the transition a seamless process, with both teams already on the same page in terms of business direction.
In a market which saw growth of 25% in the past year, there continues to be a fast pace of growth in consumer demand for newer and better products and games. The future of products under development at Glu Mobile is already looking more than promising with the announced acquisition by EA. Glu brings a team that includes more than 500 mobile game developers, which provides significant scale to EA’s mobile-focused organisation. These enhanced team capabilities will set the business up to deliver improved experiences for consumers, further growth in the future and help establish EA as a leader going forward within the mobile games segment of the industry.
Recent games have also included a new approach to in-game monetisation, which with the expertise from EA may be very helpful. In 2020, EA generated $1.9 billion in free cash flow as well as $6.7 billion in cash and short-term investments on its balance sheet. This cash flow generated signifies its ability to invest large amounts back into its businesses in the long-term, optimally positioning EA to take advantage of future inorganic and organic growth opportunities. Moreover, it will likely help accelerate the growth of the business as EA will be able to reach a growing network of players as well as new regions and markets. Following the acquisition, EA will have a market-leading portfolio of more than 15 top live services across multiple fast growing mobile genres and a nearly half a billion player network, providing a strong foundation for growth in profitability as the business continues to expand and release new products.
Risks and Uncertainties
Although the agreement has been announced, the transaction remains subject to approval by Glu stockholders and regulators. Given both sides have agreed to the acquisition and this is also not being the first time EA has acquired a mobile/social video game company, such approvals do not pose a significant risk to closing.
The pandemic has provided major tailwinds for the growth of sales in the gaming industry, however the progression back to a more normal way of living may hinder this growth in the future. Video game companies have thrived over the past year, with the crisis having accelerated both customer acquisition and engagement for gaming services. While the world continues to be impacted by COVID-19, as vaccine development continues to progress and infection rates stabilise, the time spent at home will lessen and demand for gaming will likely diminish relative to recent levels.
“As part of Electronic Arts, we will continue capitalising on the opportunities ahead in the expanding mobile gaming industry” - Nick Earl, Glu CEO