M&A Archives

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Gaming industry is booming, with a significant surge in growth occurring during the 2020-2021 pandemic, when millions of people turned to games during lockdowns. The industry is currently worth US$184 billion and is expected to reach over US$200 billion by 2025.

The market is very competitive, with a need for considerable investment and time for publishers to create successful games and for companies to develop consoles that offer advanced features and an attractive catalog of games. This is pushing players towards increased consolidation to achieve economies of scale and lower risks and to strengthen their position in the market. More than 650 gaming M&A or investment deals were announced or closed in the first six months of 2022.

Out of the numerous M&As that have recently occurred in the industry, Microsoft’s acquisition of Activision Blizzard, the maker of the world’s most popular games such as Call of Duty, Warcraft, and Candy Crush, is anticipated to make a substantial impact on the market. Microsoft announced its intent to acquire Activision for US$68.7 billion in January 2022, which was going to be the largest acquisition in the gaming industry to date. The consolidation of two strong players in the industry – Microsoft being the manufacturer of the Xbox gaming console and Activision being the publisher of many popular games – could offer users a large catalog of games and improve gaming experience and cloud-gaming services. However, it has also raised a concern that this could suppress the competition in the market of consoles, gaming subscriptions, and cloud-gaming. Many regulators across the world have blocked the deal, including the US Federal Trade Commission (FTC) and the UK’s Competition and Markets Authority (CMA). Microsoft is currently trying to get approval from the regulators.

How does the deal benefit Microsoft?

If the deal gets approved, it will turn Microsoft into one of the top three video game publishers, right behind its rival Sony. This would enhance Microsoft’s games catalog with Activision’s games, making Xbox’s choice more attractive than Sony’s PlayStation. Microsoft would also be able to enter the mobile gaming market with Activision’s mobile games, such as Candy Crush and King. This opens a large market segment, previously unaddressed by Microsoft, a segment that accounts for 50% of the total gaming market. Microsoft is planning to open Xbox’s mobile game store to compete with Apple and Google game stores.

As users increasingly prefer gaming subscriptions and cloud gaming services over physical DVDs, it gives an added advantage for Microsoft to own some of the most popular gaming titles and offer attractive subscriptions on its platform. Currently, Microsoft holds 60-70% of the global cloud gaming services market and could further squeeze into the shares of other companies, such as Google, to dominate the market.

The company would also be able to venture into metaverse and Non-Fungible Token (NFT) games using technological and newly acquired game development capabilities.

What does this deal mean for gamers?

The Xbox Game Pass subscribers would benefit from the added list of Activision Blizzard games, which would be incorporated into the existing catalog. However, it is unclear whether Microsoft could make future games developed by Activision unavailable on other consoles, such as Sony PlayStation and Nintendo Switch. There is also a possibility for Microsoft to increase the subscription prices if gamers are highly reliant on Xbox-exclusive games.

Cloud gaming technologies are likely to improve in the future to overcome high latency and lost frames issues faced currently. However, if Microsoft dominates the cloud gaming space, it may reduce the gaming choices for gamers.

What are the concerns over the deal?

The major concern put forth by the regulators is whether the deal could negatively impact the competitive landscape of the market. For example, Sony currently owns 21 in-house game studios, and Microsoft owns 23. If Microsoft manages to get the deal, the company will have 30 in-house game studios, making Microsoft’s Xbox a much better choice and also giving the power to decide where these games are to be played. If Microsoft makes Activision’s future games exclusive on its platforms, it will dominate the console, mobile, and cloud platforms, killing the competition. This can discourage competitors from developing high-quality games. It can also enable Microsoft to decide to reduce the quality of its games or increase the prices when it dominates the market. Even if the company makes these games available on other platforms, competitors fear that the company may offer low-quality versions or remove their marketing rights or support for other console features.

The biggest concern is over one particular game – Activision’s Call of Duty, the most-played video game in the world. Microsoft has already agreed to offer a 10-year licensing deal to console manufacturer Nintendo, however, Sony has refused to accept the offer. When Microsoft purchased Bethesda game studio in 2021, the company made its highly anticipated sci-fi game Starfield into an X-box and PC exclusive. This is one of the reasons why regulators are concerned about Microsoft’s promises to make its games available on other platforms.

The regulators also raised concerns about how the company could completely sabotage the cloud-gaming market by withholding Activision’s games from rival cloud-gaming services.

Status of the lawsuits

Microsoft is yet to receive approval from the US FTC and UK CMA. The company attempted to convince the CMA by entering into agreements with cloud gaming competitors to provide access to Xbox games. CMA remains unconvinced, which appears to be a major block for this deal. However, the company’s agreements with Nintendo and NVIDIA on providing a 10-year licensing deal for the Call of Duty game have convinced the EU regulators, and the company has won the EU antitrust approval. Regulators in Saudi Arabia, Brazil, Chile, Serbia, Japan, and South Africa have also approved the deal.

The case filed by FTC is still in the document discovery stage, and an evidentiary hearing is scheduled for August 2023. Even though the company has won FTC lawsuits before, it is to be seen if it can win the approval for this massive acquisition deal.

EOS Perspective

Considering how Nintendo managed to acquire a 30% market share in the video gaming console industry by owning just 2 studios compared to Microsoft’s 25% share with 23 owned studios, it might not be very concerning that Microsoft owning 7 more studios through the Activision deal could sabotage the competition in the market. The deal can make the rivals more competitive to develop better console generations and games.

However, it can be anticipated that Sony might lose some of its market share to Microsoft right after the deal. It can also affect Sony’s profit if the company has to take paid licenses of games owned by Microsoft. However, on the other hand, if Microsoft goes against its promises and makes the games exclusive on its platforms or does not support the other platforms’ gaming experience, it could seriously damage the competitors’ businesses. Looking at the brighter side, the marriage between two superpowers in the gaming industry could significantly transform the gaming experience for the users, open new possibilities such as Xbox mobile-game subscriptions or metaverse games, or improve cloud-gaming services.

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Putting an end to all rumors and speculations making the rounds about the Walmart-Flipkart deal, Walmart, America’s largest retail chain, on 9th May, 2018, finally closed the deal at US$16 billion by acquiring Flipkart, India’s largest e-commerce platform

What’s the deal?

The buyout, touted as one of the biggest e-commerce deals, has led Walmart to own 77% stake in Flipkart. The association of the two players comes at a time when the Indian e-commerce market is bourgeoning and is expected to reach US$200 billion by 2026 (up from US$15 billion in 2016), increasing at a CAGR of nearly 30%. For Walmart, this is a great opportunity at the right time to grow its foothold in the Indian market.

As part of the deal, US$2 billion was the definite amount invested in Flipkart, and remaining US$14 billion was used to buy out other stakeholders which sees Softbank’s (Flipkart’s largest shareholder prior to the deal) exit from Flipkart, among others. The remaining 23% of the company stakes will stay with Binny Bansal (co-founder of Flipkart), China’s Tencent Holdings, Tiger Global Management, and Microsoft.

Flipkart and Walmart offer each other a strategic and valuable partnership. By acquiring Flipkart, Walmart adds Jabong and Myntra (fashion retail players), PhonePe (payment platform), and Ekart (logistics and supply chain provider) to its portfolio. Walmart can use them to its leverage in understanding the Indian e-commerce ecosystem and gain insights into Indian consumers’ online shopping habits. In return, Walmart’s experience in logistics and supply chain will come in handy for Flipkart to strengthen its operations, even further, in India.

What does it mean for e-commerce landscape and players?

Walmart acquiring Flipkart may prove to be a turning point for e-commerce in India. Small and medium sized enterprises are expected to gain from the deal. As Walmart grows in India, the company plans to procure products directly from local businesses and offer them growth opportunity by exporting their products to other countries via e-commerce. Even grocery suppliers and ‘kirana’ stores owners could benefit in the long run as Walmart may merge its cash and carry business with Flipkart, which aligns with Flipkart’s move to invest and grow its online grocery business – it launched a pilot program to sell groceries on its platform in Bengaluru in July 2017.

However, the deal has not been welcomed by online sellers on Flipkart and they are concerned about the future of their businesses. There is a speculation that with Walmart entering India, it may bring with it the already existing line of labels via Flipkart to the Indian market. This may not only increase competition among sellers but may result in eliminating some of the smaller sellers already present on the Flipkart platform by offering products at much lower prices.

But the most difficult challenge brought by the acquisition will be faced by other players, such as Snapdeal or BigBasket, operating in the e-commerce space. As Walmart and Flipkart ally together, having a proficient knowledge related to retail, supply-chain management and logistics, and with its tiff with Amazon, already a front runner, it is most likely that the competition in the e-commerce sector is going to intensify and players, especially small ones, will have to offer top notch service in terms of quality, price, on-time delivery, and possibly vertical or niche specialization, to survive the heat of the competition.

What does it mean for consumers?

With fierce competition expected to rise between the many e-retailers, it only means good news for consumers. Consumers can now expect new brands, better variety, and more options to choose from. In order to stay ahead of its competitors, players will be likely to offer better discounts which the consumers want.

Apart from better promotional offers, consumers can also expect better customer service and quicker product deliveries. Also, as the e-commerce sector grows in coming years, it is most likely that large players such as Walmart and Amazon would broaden their reach in Tier II cities, Tier III cities, and even rural areas, as consumers in these parts of the country represent a huge untapped potential for online sales.

What can be expected in future?

In the current scenario, this move brings with it both good and bad news. From a consumer’s point of view, evolution in the e-commerce space is great as they will now have more options at better prices to choose from. However from a supplier’s perspective, the pressure to offer good quality products at low prices, while surviving competition, will be intense.

The deal is expected to revolutionize the dynamics of online and offline retail sector in India. The e-commerce boom is relatively new to India and a merger like this signifies the enormous potential of the sector by offering new opportunities to suppliers and delivering more value to customers.

The deal is expected to revolutionize the dynamics of online and offline retail sector in India.

With the deal being finalized, one thing that is bound to happen is a head on collision between Walmart and Amazon to emerge as the leader in the Indian e-commerce landscape. To outrun its competitor, each player will rigorously work on improving its supply chain infrastructure thus can be hoped to create a good number of jobs. As the consumer demand increases, farming (through new grocery stores that Flipkart plans to open) and infrastructure sectors are expected to benefit in the long run.

At this stage, only speculations can be made about how much benefit Walmart will have by acquiring Flipkart. However, this deal has definitely paved the way for the growth of the Indian e-commerce industry.

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