Analysts on Sega-Rovio: $776m is a bargain given IP synergy and transmedia potential


Our commentary continues on the Sega-Rovio deal today with four different analysts from around the world offering their insights. Does this deal makes sense, and what does each company stand to gain?

For further thoughts from insiders, industry watchers and Rovio staff, be sure to read yesterday’s reaction piece, vividly titled Sega and Rovio: a perfect match or ‘two drunks holding each other up’?

Ampere Analysis head of games research Piers Harding-Rolls:

“Sega and Rovio look a good fit on paper: I see product, expertise and IP synergies between the companies. A company like Sega can drive more value from a Rovio acquisition than many other potential acquirers because of this alignment.

The acquisition price reflects Rovio’s standing in the market today – a company that has had its ups and downs since the peak of Angry Birds fever. Will it transform Sega into an international mobile gaming and cross-media powerhouse? No, but it will boost Sega’s growth strategy and give it more options – as such €700m for Rovio appears a fairly risk-free acquisition.”

Kantan Games CEO Serkan Toto:

“Sega buying Rovio surely hasn’t been on anybody’s bingo card in Japan. However, it’s not the first time a Japanese studio buys a Western mobile game developer. Over a decade ago, the Japanese powerhouses DeNA and GREE gobbled up US players like ngmoco, Gameview, Funzio or OpenFeint over just several months. That buying spree made a lot of heads turn back in the early days of our industry.

The $776m Sega paid converts to 13x enterprise value/EBIT, which looks like a discount when compared to the economic environment one or two years ago and other deals done during that period.

Sega says Rovio’s expertise on mobile and the Western markets matches its own strengths in video gaming and the Japanese market. It should take a few years until we see if this is just conceptualized or will actually yield real results for Sega.”

Niko Partners East Asia and Southeast Asia research director Darang Candra:

While the value of the acquisition is below Savvy Games Group’s recent acquisition of Scopely ($4.9 billion), we expect that it will be among the top 10 acquisitions this year. Sega’s acquisition of Rovio also comes a few months after Playtika offered a 55% premium to acquire the company. While it’s difficult to comment on the true valuation of a company, this is lower than the valuation the company had when it first went public and may go some way to explain why negotiations ended with Playtika in favour of Sega’s higher offer.

This acquisition allows Sega to continue its push into the mobile gaming sector, as the company has been pivoting from its traditional focus on console and arcade segments. The deal also gives Sega a larger overseas and global presence on mobile immediately, which helps them diversify beyond Japan where they currently generate the majority of their mobile game revenues.

Rovio’s globally popular IP Angry Birds can synergise with Sega’s Sonic IPs in pushing for more transmedia content to rejuvenate the company. The existing mobile game development teams under Sega will also benefit from Rovio’s investment in infrastructure and its Beacon platform.

In terms of the transaction being run through Sega Europe, it is not a particularly notable difference, as other major Japanese companies such as Square Enix and Sony have operated studios that they acquired through divisions specifically for their overseas subsidiaries, such as Square Enix Europe with its former studios Crystal Dynamics and Eidos-Montreal, and Sony’s Worldwide Studios (now PlayStation Studios) division.

Sega’s acquisition of Rovio mirrors Sony’s recent acquisitions, which have focused on mobile developers such as Savage Game Studios, and the new push for mobile by traditionally console-focused games companies.

Sega has said the acquisition will assist in fulfilling its mid-term strategy, and one of the goals in that strategy is prolonging the life cycles of its products, something that a free-to-play mobile game developer such as Rovio will likely assist with. It will also be valuable for domestic releases as mobile gaming is the largest market in Japan for video games.”

Midia senior analyst and data VP Karol Severin:

“The deal makes sense for both sides. Live services are on the rise and mobile gamers are the most populous gamer segment.

Sega, while recognised as one of the key brands in video games, does not really have a strong tradition not in either live services nor mobile games. Acquiring Rovio is a significant step in diversifying Sega’s portfolio towards live services and mobile gamers.

Rovio has 20 years of experience in mobile gaming and live services and was one of the last few ‘OG mobile games unicorns’ which have not been acquired yet. The acquisition is another chapter on the games industry’s wider consolidation journey in this sense.

Furthermore, Rovio has been one of the small handful of mobile games companies that have managed to build up recognisable IP and characters to go with it. SEGA has a strong track record of leveraging IP across entertainment, as demonstrated by its endeavours with the Sonic brand in the world of video.

All the above elements will contribute to synergies stemming out of this acquisition.”

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