Tokyo-based videogame developer Sega Sammy Holdings (T:6460 and (SGAMY) ), famed for its Sonic the Hedgehog mascot, on Monday struck a deal to buy the Finnish creator of the "Angry Birds" mobile games, Rovio Entertainment (HEL:ROVIO and (RVYTTY) ), for €706 million (US$775 million) in stock.
The deal means that buy-and-hold shareholders who jumped on Rovio's initial public offering in September 2017 lose out, with the sale price coming at €9.25 per share, as well as €1.48 per option. But jobs look to remain safe in Helsinki while Sega Sammy expands its business in the high-growth mobile gaming segment.
Rovio rode Angry Birds to the public markets at a valuation of €11.50, pricing at the top of its indicated range and giving it a valuation of US$1.1 billion at the time. TheStreet.com reported prior to the offering that Rovio had been exploring a valuation that could have topped US$2 billion, coming hot on the heels of the release of "The Angry Birds Movie" in 2016, which brought in US$350 million at the box office worldwide.
But that was pretty much peak Angry Birds. After a brief run-up to an all-time closing high of €11.87 in October 2017, the shares swiftly descended to €4 and change the following year after disappointing financial forecasts and disclosures on growth. The shares never recovered their early value.
Angry Birds debuted in 2009 and was the first game to exceed 1 billion downloads, and the many games in the series have now surpassed 5 billion downloads. Rovio this year was in the weird position of temporarily delisting and renaming its re-release of the original Angry Birds game because it was too popular and was cannibalizing its other games. It pulled "Rovio Classics: Angry Birds" from app stores and renamed it "Red's First Flight," presumably to make it less likely to show up in searches for "Angry Birds." The re-release sold at US$0.99 but didn't feature the micro-transactions that make most mobile games such money spinners.
Sega Sammy will complete the deal via its Sega subsidiary, specifically the British company Sega Europe. The London unit already owns the studio Sports Interactive, which developed "Football Manager," a soccer team management sim that has been running for the better part of two decades. Sega Europe also owns the studio Creative Assembly, which makes the PC strategy game "Total War."
The Angry Birds acquisition is yet another step in the long-running consolidation of the game industry, with big developers such as Sega keen to expand their offering in mobile gaming in particular. And as an avid gamer, I'd say the combo brings together a couple franchises that have their fans but are also at risk of growing stale.
Sega brought out the game "Sonic Frontiers" last year to reasonable acclaim and praise from fans, but hardly blockbuster success. It scores 71 on Metacritic, described as "mixed or average reviews." The two companies have in common a highly successful mascot that they've exported into merchandise, movies and more. But then what?
Sega has been mooted by fans as a takeover target itself. In the background, you've got Microsoft (MSFT) and its eye-popping US$68.7 billion attempt to buy Activision Blizzard (ATVI) , the maker of the world's best-selling game currently, the "Call of Duty" series. The deal faces regulatory scrutiny all around the world, but if it comes to pass (and in some form, it surely will) it will be not only the biggest gaming merger but also the biggest deal in the entire tech sector.
I wrote about the Activision deal when it broke back in January 2022 to say that the pessimism surrounding Microsoft's competitor (Sony T:6758 and (SONY) ) was overdone. Sony has a big winner on its hands with the PlayStation 5 console, which is more than holding its own against Microsoft's rival Xbox consoles. And let's not forget -- they are the two console makers left standing after companies such as Sega, maker of the Sega Genesis and Sega Dreamcast consoles, threw in that towel.
Ultimately, the entire game industry is setting itself up for a world without consoles. Superfast WiFi, phone service and streaming will mean we don't need big boxes in our living room anymore.
Sega Sammy plans to invest as much as ¥250 billion (US$1.9 billion) in the five years through its fiscal year ending in March 2026 to strengthen its entertainment content. It says it is particularly interested in the "Consumer" segment, with Sega noting mobile gaming is growing at a compound annual rate of 5.0%, well ahead of the 3.5% rate of the gaming industry overall.
By 2026, mobile gaming will represent 56% of the US$263.3 billion global gaming market, according to IDG Consulting.
Sega said it hopes to use a platform called Beacon developed by Rovio to expand Sega games into "live-service mobile games," meaning games that are often free to download but constantly update and offer players the opportunity to make micro-transactions to buy game passes, cosmetics and the like. Sega also recently offloaded its videogame arcade business in Japan, clearly not wanting to be tied to that old tech.
Sega Sammy President and CEO Haruki Satomi said he is "blessed" to announce the Rovio deal, which boosts its presence in a mobile gaming market that "has especially high potential."
Sega Sammy shares lost 4.2% in Tokyo trading today. Rovio ran up close to the offer price, with the last price in Helsinki at the time of writing at €9.16, up 17.8%.
The Rovio board has recommended unanimously that shareholders agree to the offer. It comes at an 18.9% premium to Friday's close. Under Finnish law, Sega Sammy already must have the necessary financing squared away.
Rovio said shareholders who hold 49.1% of the stock have "irrevocably undertaken" to accept the buyout already, because the families of founders Mikael and Niklas Hed support the deal.
It's an even bigger premium if you go back to the Rovio stock price on Jan. 19, when the Israel-based mobile game developer Playtika Holding (PLTK) announced it had made a bid for Rovio. The Playtika offer valued Rovio at €9.05 per share, or US$810 million, with the Israeli company saying it had already walked up the offer from €8.50 per share.
Rovio shares closed Jan. 19 at just €5.67, making the Sega bid an improvement of 63%.
Rovio said in March that it had walked away from those discussions with Playtika but was in talks with other potential bidders, which it didn't identify at the time.
It's not clear why Rovio rejected the offer from Playtika. But Playtika previously bought the Finnish developer Seriously in 2019 and then shuttered its Helsinki business last year, something that may have soured the Angry Birds team in the same city. Rovio said the Sega deal shouldn't have any "immediate material effects" on jobs or the operations of its offices.
The decision may also have involved the options, which weren't addressed in the public offer. Goldman Sachs (GS) is now advising Rovio on the Sega deal, and it's worth noting that Goldman said the share price being offered "is fair from a financial point of view." But pointedly, the Goldman verdict doesn't discuss the option price. Bank of America (BAC) , via BofA Securities, is advising Sega Sammy on the deal.
