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Facebook paid $19 billion for WhatsApp since they were a huge success and a fundamental competitor to their business, whereas Disney had lots of options for making successful films and would have to put in a ton of work to get big money out of LucasFilm and thus paid $3.4 billion less than buying Pixar.

Value is based on the what the company is currently doing, their market position, the conditions of the market they're in, their trajectory, and how important the acquiring company feels they are to their business. It's generally always expensive, but you will see acquisition prices range wildly based on these types of valuations.

LucasFilm had a very valuable IP and wasn't doing a whole lot with it. King is a major leader in a market with huge barriers to success that's continuing to do well and has a large pipeline of products.

This is a very important point when comparing any major acquisition. I wanted to make it but Nirolak said it better.

I'm very curious how quickly Activision Blizzard will act. Disney made moves within mere moments of their acquisitions of Marvel and LucasArts. How much free reign will King have? It's a very interesting situation.

 

[CapitalismSucks DonkeyBalls]

Interesting read, I have to say that that echoes my general sentiments about the whole thing. The part I disagree with though, is assuming that Activision did it on an impulse to catch up. That really doesn't strike me as their style, I don't think out of all of the things I could call Activision, impulsive with money would be one of them. If anything all of their products are crafted to a fault to be guaranteed to sell. They know how to make business decisions.

I think that sentiment stems from the generally volatile ebb and flow of the mobile market. Anytime a big purchase like this is made, I think back to Zynga and how their products floundered so quickly to the point that games like Words with Friends and Draw Something are considered fads of the past.

Maybe Activision will do something different. I think microtransactions will be the deciding factor on how successful this acquisition will be.

 

[QFNS]

Wow, that's a seriously shocking article.

It literally says nothing about the transaction other than "Look at how much they're paying, that's too much"

Er, that's not how things work, and the fact that the article barely mentioned the share price offered didn't help. At $18 per share, not even a 20% premium over the preceding trading price, the premium isn't that great.

Further to this, while King is due to report Q3 results tomorrow (Hence Activision moving before-hand), Q2 shown Second quarter 2015 adjusted EBITDA was $207 million So even on a worst case, annual EBITDA was $800 million. On a forward earnings basis, Activision paid 7.4x EBITDA for King, which is pretty bloody cheap.

Also, as King reported Cash and cash equivalents were $786 million at June 30, Activision will take that cash, taking the transaction to $5 billion net, and I couldn't see any mention of debt, so there's probably no debt to take on.

Yes, still a lot of money, but even if King slowly deflates, Activision will still make their money back, and frankly, they're clever/evil enough to find ways to make money from them.

So no, not a bad deal at all really, for Activision, or King, who frankly needed a more established partner to gain a more permanent foothold in the casual gaming marketplace.

Thank you for making some important points that the business savvy among us didn't understand. I think many people here just don't realize the enormity of the money involved in these moblie games. If this is a purely financial move by Activision-Blizzard, then maybe it will at least give them access to some mobile-space titles that do well to please their investors. If this is some long vision, I just don't see it. They have been not doing mobile for years. It smells like they don't understand the market and just want to buy into a successful area and ride it into the ground (you know, the Activision way: See Guitar Hero, Tony Hawk, et al).

 

[brau]

Not even Star Wars got that much money when bought by Disney. I believe $4 billion dollars was the number.

Activision overspent. I wonder if King will get earn them that much money in the long run to justify this acquisition.

 

[wiibomb]

Honestly I think the acquisition fits quite well and they're a very cash rich company, so investing in strategic diversification - even at a premium - is the right move for their future.

There's not much in the Blizzard or Activision pipelines, especially beyond the next year or two. They're hopelessly out of touch with mobile which a field growing by leaps and bounds. King is successful around the world and has fantastic profits and margins. There's almost no overlap with their existing businesses.

This is basically the exact same strategy they engaged in when they merged with Blizzard in the first place. Blizzard had a huge digital presence and a huge PC presence. Activision was a gigantic retail console publisher.

We can even see the core philosophy when looking at their revenue make-up chart:

EA diversified this way as well, and it cost them a huge amount up front through both acquisitions and development, but now they have extreme dividends from this strategy and have a market cap exceeding Activision Blizzard's.

Beyond this, as for the price point, mobile is incredibly hard to grow into organically because the market leaders are insanely static. Activision made major mistakes in not getting in early, so this helps them correct in a way that aligns them with someone who has been successful for years on end and across a variety of titles instead of a studio who treads entirely on one game. I'm sure they would have considered Supercell if they were not already owned, and the other options are quickly evaporating. Since entering organically was fundamentally not working for them, I don't think there were other good options on the table, so yes, they need to spend a lot to get here, but it's not a big fee for the company as a whole and it got them exactly where they wanted. What else would they do with the funds? Another special dividend on a company without many obvious growth routes?

I'm so glad I entered this thread to read more, initially I thought that may be the acquisition was a huge mistake since they might have already the team to work on mobile, even Blizzard division has been tackling the mobile aspect with hearthstone, but I would lie if I say I know of its success.

in all case, I think it isn't such a big mistake give your reasons, EA in my eyes are the only huge juggernaut that can rival Activision in its revenue and diversity (I still don't count Ubisoft in that regard) and they had to make such a huge investment in the past to get into mobile, Activision seems to have taken the (huge) tax of entering the mobile space so late in its cycle, that's why they had to pay lots more to get there.

now I wonder if this will get results for them in a midterm or longterm to see if the results where worth, I believe Activision might need some time to get all those cogs to work properly for its business.

 

[Basileus777]

I think that sentiment stems from the generally volatile ebb and flow of the mobile market.

This doesn't seem to be an accurate read of the market though. Most of the market leaders stay on top for quite a long time, and Zynga is hardly representative.

 

[Drkirby]

This makes Microsoft buying Mojang seem like a steal.

Yeah, the Mojang buyout make since to me, I do believe Minecraft's brand could generate more then $2.5 Billion within a few years, and will have staying power. I don't think any of King's IPs or technologies could earn back $6 Billion, but maybe I'm underestimating how much revenue their Micro transactions were generating.

 

[ALLseeingEYE]

This makes Microsoft buying Mojang seem like a steal.

At least Microsoft had a solid reason for buying Minecraft, which is to sell its hardware (Hololens, Win10, Windows Phone, Surface). This just seems like a bafflingly dumb business decision for Activision, especially after both Zynga and Rovia stocks crashed hard.

I'm sure Activision has a plan to exploit the hell out of the Candy Crush name, but unless that plan makes them 10-15 billion, I can't see how this will be anything but a losing proposition.

 

[CapitalismSucks DonkeyBalls]

This doesn't seem to be an accurate read of the market though. Most of the market leaders stay on top for quite a long time, and Zynga is hardly representative.

But look at the mobile market and the types of games currently available.

Matching games
Minecraft clones
F2P base defense

I mean, is the market stable enough to maintain these games' popularity for years and years? If so, good call by Activision. I just don't have much faith in the market as it stands.

 

[dickgumshoe]

The price seems exorbitant. Just shows how crazy the whole mobile segment is.

Are there any recent studies on who spends money in mobile gaming, how much on average and such? I would really like to know if the whale hunting strategy still works and how viable other paths are.

 

[Baki]

Don't agree at all. As mentioned earlier, even assuming continued declining revenue, ActiBlizz will have no problem recouping their investment.

My biggest surprise is that investors are taking such a low premium on their shares. Kottick did a good job at getting this below their IPO price.

The price seems exorbitant. Just shows how crazy the whole mobile segment is.

Are there any recent studies on who spends money in mobile gaming, how much on average and such? I would really like to know if the whale hunting strategy still works and how viable other paths are.

King does $2 billion in revenue. Makes them one of the biggest publishers in gaming.

 

[thekiddfran]

I think they pad about right for it to be honest.

In one purchase, Acti now have an established mobile dev studio with the most popular mobile game for Ipads and Iphones.

They will make their money back no problem with this studio.

We also don't know the plans they have for this studio. They could be making this studio create the next Heartstone game

 

[samn]

I thought the price they paid was crazy BEFORE someone pointed out that it was more than what Disney paid for motherfucking LucasArts! Jesus.

First of all, LucasFilm, not LucasArts.

Secondly, the thing that needs to be shouted from a megaphone is that Disney underpaid for Lucasfilm by many billions. They got an INCREDIBLE deal. You'd have a hard time finding any other acquisition of this scale that was so good a bargain.

 

[RealityCheque]

It's bought with zero cost debt thanks to long term interest rates being at or near zero.

I'd also say they also got it at a discount in negotiations given that their shares were 25-30℅ down from the IPO highs.

It probably makes sense to Activision from a "growth" perspective but in pure business terms they've borrowed at zero cost so the risk is, for now, minimal.

 

[a harpy]

I think they pad about right for it to be honest.

In one purchase, Acti now have an established mobile dev studio with the most popular mobile game for Ipads and Iphones.

They will make their money back no problem with this studio.

We also don't know the plans they have for this studio. They could be making this studio create the next Heartstone game

It'll depend on what happens. If the dev talent is put towards the appropriate items, then yeah, they could make the money back easily. If King continues the way it is going (with no improvement or decline), it could take them long enough to make a profit that mobile gaming as we know it might be different.

 

[Dubz]

The market seems to like it. Activision stock is at an all time high.

 

[friday]

Yeah, I was a bit confused as to why Activision would buy King and why they would pay that much. It just seems like it is gonna be a long road to make money on this purchase.

 

[Aaron D.]

I thought there was already a thread on this acquisition.

Did it get locked or something?

 

[kyle-777-]

There's basically no such thing as customer loyalty in the mobile space, so I have no idea why companies keep snapping up one-hit wonder mobile devs.

I don't know... My GF really likes candy crush and she checks out every new king game, maybe it's because most of them are match 3 like, but still..

 

[Scientist Supreme!]

I thought there was already a thread on this acquisition.

Did it get locked or something?

Don't think so. This thread about a article saying basically why it isn't a great idea.