UK gaming veterans call for investment in British companies
Two veterans of the video games industry have called for Britain to invest more in homegrown talent and prevent the loss of further UK-based companies to foreign buyers, after a year of frenzied dealmaking in the gaming industry.
David Braben, who founded Frontier Developments, one of the last remaining public gaming companies in the UK, said it was a “real shame” to see so many British firms, such as Codemasters and Sumo Digital, getting acquired by overseas groups.
“We don’t celebrate success in this country in the same way the US does,” he said. “We find it hard to go beyond a certain growth stage without being acquired, which is why more and more companies are staying private.”
Sir Ian Livingstone, who helped bring to life Tomb Raider’s Lara Croft and the Warhammer fantasy games and has worked in gaming for nearly 50 years, said: “You’ve seen how many companies have just sold out earlier than they should have done because of being unable to get venture funding [or float in an initial public offering]. People were just not investing in the space.”
To help address the funding gap, Livingstone’s latest project, Hiro Capital, is this week launching a new €300mn venture fund to invest in video games and “metaverse technologies”, which will help developers to create virtual worlds.
The concerns come amid a wave of global dealmaking in the video games industry as competitors fight to secure strong gaming intellectual property. Microsoft last month bought video game maker Activision Blizzard for $75bn, the biggest-ever deal by the tech company.
Deals for UK video game makers rose by 63 per cent in 2021, to reach £1.9bn in 2021, according to research from accountancy and business advisory firm BDO, as overseas companies sought to snap up some of Britain’s successful studios. This included US gaming giant Electronic Arts’ £1bn purchase of Playdemic, the maker of Golf Clash, as well as completing its $1.2bn acquisition of Codemasters. Chinese tech group Tencent acquired Sumo Group, the designer of Sonic Racing, for £850mn.
These purchases came against a backdrop of British anxiety that its capital markets are waning in significance as an increasing number of technology companies seek to move or list overseas. Earlier this month, Japan’s SoftBank revealed plans to list Arm, one of Britain’s most successful companies, on the US Nasdaq rather than the London Stock Exchange.
Staffan Ekstrom, a partner at EY who has advised on gaming deals for more than 10 years, said US buyers will make “calculated moves”.
“They’ll be looking for companies with low valuations, great IPs and an ownership structure that makes it possible,” he said. “If you have a big title or launch that hasn’t gone well, you can expose yourself.”
Braben conceded that Frontier has been seen as an acquisition target because of its strong roster of successful games which have gained cult status, such as space-epic Elite Dangerous and Jurassic World Adventures. Tencent, which has bought several UK studios over the past few years, took out a 9 per cent stake in Frontier in 2017.
But the UK gaming company’s shares have dropped 52 per cent over the past year to reach a market capitalisation of £492mn, driven in part by slower than anticipated games releases.
“If you look at what happened to the share price it wouldn’t make sense to do anything now,” Braben said of the possibility of a sale, adding that the 33 per cent stake he and his wife had in the company would act as a “natural barrier” to any takeover attempt.