There is one bright spot in many investors’ portfolios this year and that is the video games sector. Experiencing record rates of growth while other industries falter under the weight of the COVID-19 pandemic, game companies are looking for more ways to move the bottom line and drive the stock price up. One of the most popular methods for doing just that is for larger titans of the industry to gobble up smaller players with solid portfolios. This is basically what EA has done for its entire corporate history.
And they just outbid another massive player in the industry as EA walks away with Codemasters for $1.2 billion, snatching the British developer of F1 and Dirt out of the hands of rival Take-Two Interactive.
Take-Two’s original bid of $971 million was bested by Electronic Arts which seeks to further its portfolio of sports-themed games.
A press release from Codemasters read in part: “ The Codemasters Board has considered various aspects of the EA Offer and considers the EA Offer to represent a superior offer for Codemasters’ shareholders as compared with the Take-Two Offer.”
The deal is a pretty big one for EA, too, as it marks their largest acquisition to date. As we hinted earlier, EA isn’t shy about buying other companies so the fact that Codemasters commanded the highest premium yet should give us some insight into EA’s plans for its properties.
This also recalls the deal Microsoft made for Fallout and The Elder Scrolls’ home, Bethesda, earlier this year. Is consolidation fever sweeping the industry? Many analysts say that is exactly what is happening and the end goal is a greater share of a rapidly growing market.
Head of tech, media and telecom research at Mirabaud Securities wrote in a letter about the deal, “In some respects, EA’s move feels defensive, because they are already under attack from Take Two and many of their franchises are becoming second rate relative to leaders.”
Indeed, bolstering their portfolio of sports-related titles is exactly what EA is doing. The company can leverage Codemasters’ portfolio of games with EA’s access to a massive audience of gamers to amplify existing properties and maybe even spawn new ones. A huge reason for EA’s aggressive actions in the sports gaming space is that many of these titles are iterative in nature and thus bring in a stable or reliable amount of income on a yearly basis.
Why take a risk on the Cyberpunk 2077s of the world when you can just pump out another Madden or other sports title, this thinking goes. There is also the company’s massive online presence and infrastructure as well as their increasingly intimate ties with the eSports industry to consider when looking at Codemasters’ games.
What do you think of EA’s purchase of Codemasters? Do you think consolidation is good for the video game industry or a bad sign? Let us know your thoughts on this in the comments section below.
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