Everyone wants to acquire a games company these days, it seems, including former Sony boss Jack Tretton.
Best known for his involvement in creating the original PlayStation in the 90s, and his subsequent run from 2006 to 2014 as President and CEO of what was then known as Sony Computer Entertainment America, Tretton has since been busy working with the indie development community. through gaming funds like Interactive Gaming Ventures. Today, he wishes to pursue this mission by acquiring an independent studio himself.
Speaking to IGN, Tretton said that during his time at Sony and since then he’s seen incremental change that has allowed smaller studios to be less reliant on big publishers to get their games out to the world.
“With online stores, anyone can be a publisher,” says Tretton. “So the good news is that the barrier to entry is greatly reduced. It’s still very expensive to build a game, but a fraction of what it was back when you had to do a AAA, a hundred million dollar project to see the light of day on the shelves.
But that doesn’t mean it’s easy to release such a game. He says that as indies look for more sources of funding, he sees growing interest in mergers and acquisitions. [M&A]. But independents are reluctant, he says, because they don’t want to lose their independence, and going public themselves to make money from investors is a costly and complex proposition. How, then, can a freelancer raise funds from investors while remaining independent, small, and secure?
Enter Tretton and his new company: PowerUp. PowerUp is a SPAC: a special purpose acquisition company. As Tretton concisely explains, SPACs are companies that exist for the sole purpose of acquiring or merging with an existing private company and taking it public as a combined entity. It’s an easy way for small businesses to go public while simultaneously gaining additional financial support, and potentially, an experienced group of industry professionals behind them who can offer guidance, support and direction. . In PowerUp’s case, Tretton says that also means letting the studio stay independent by remaining a minority owner.
“We want to have more of a mentoring role or maybe sit on the board, but we’re not interested in joining the management team or taking over from the management team,” he explained. he.
There are hundreds of SPACs out there, but PowerUp is relatively unique as a gaming industry-specific company. Tretton says the lack of SPAC in the roughly $200 billion games industry, especially as acquisition becomes a hotter topic, is part of what prompted him to start PowerUp with a group. of executives who already know the gaming space. That experience, Tretton says, is something missing from the handful of SPACs he’s seen dive into gaming so far, making the developers they court suspicious of what they peddle.
This experience is also necessary, because PowerUp’s plan is not just to invest money in projects that they think could be lucrative, but to actively develop a game company. Tretton says he’s looking for companies with strong management teams that already have their eye on going public, with a valuation of around $1 billion to $2 billion. That sounds huge, but for comparison, Bungie was acquired by Sony for $3.6 billion – so imagine something about a third the size of the Destiny studio. Not at all small indie, certainly, but independent, and not massive. And Tretton isn’t just looking at developers either: PowerUp can take over a studio, publisher or gaming-adjacent company in a field such as media, esports or advertising.
Between Tretton’s experience in the industry, including with a number of actual acquisition transactions, and his newly formed SPAC, he obviously has a lot of insight into mergers and acquisitions in general. Even though it seems like M&A deals seem to be popping up everywhere these days, the public really only sees the end results, and nothing of the process behind them. Companies discuss M&A deals all the time, which is why rumors of such conversations constantly crop up and may or may not come to fruition. Tretton explains that there are a number of reasons why deals fail mid-term. There could be a single majority investor not involved in the day-to-day business who is not interested in the deal and ruins everything. Or there could be a valuation issue, which Tretton admits is a tricky subject both in terms of the public’s understanding and that of the parties involved – an issue that involves a calculation of stocks both on the amount actual value of the business at the time, as well as its future potential.
“Valuation is when you start to annoy players, but the basic definition of valuation is that your business is valued realistically, because if you’re going to be acquired, you want to raise the valuation that high. as possible to get as much cash as you can when you’re acquired,” says Tretton. “If you’re going to go public, you have to be very realistic about how you value your business, because the shares and the value of the business are going to be based on what everybody considers and if you inflate that, it lasts a few days and as soon as you don’t meet that assessment and you don’t meet your targets, the stock goes down the toilet.
But when discussing mergers and acquisitions, parties sometimes clash over the difference between the acquired company’s perceived value and what its investors see based on the data. This conflict can also go both ways – sometimes investors don’t have a full understanding of what the company can do, but sometimes companies overestimate their own capabilities and worth. It’s a complex dance that requires buy-in from everyone involved.
And then there are a number of other various reasons why a deal could fail.
“People change their minds or someone else comes along at the 11th hour and fills their heads with a different vision than they originally subscribed to,” says Tretton. “You’re in a letter of agreement, someone walks in and turns their head or you see someone more attractive and you get rid of them. I’d like to think that would never happen, but I can tell you that anyone who’s done these merges will tell you that it’s better to talk to multiple players on both sides, because deals tend to fall apart and you think you’re on the road with someone and the deal falls through. It takes a long time and costs a lot of money to make it happen.
So what’s behind the gaming industry’s surge in acquisitions lately? Tretton’s theory is that the boom is linked to the number of game companies compared to 15 or 20 years ago, combined with the skyrocketing numbers that the biggest game companies are recording every year. There is simply more to acquire and more money to do so. And, he adds, that’s a good thing.
“You have strategic mergers and acquisitions that I think are good for the industry, because if an Activision is part of a Microsoft or a Zynga is part of a Take-Two, that creates room for a new Zynga or a new Activision to pop up, and maybe somebody who’s a fraction of the size of an Activision or a Zynga will become the next Activision or a Zynga, and those guys will lead more small businesses with them,” Tretton says. “So I think that’s a sign of growth in the industry and a sign of the value of the industry and it’s all positive.”
But what about the downsides? Will larger companies taking over smaller ones stifle the creativity of acquired companies? What about platform exclusivity for popular cross-platform franchises? Tretton is confident that, generally speaking, these won’t be problems – or at least not significant problems.
“I think the relationship between the two companies is obviously much closer once you acquire this company,” he says. “And I hope Microsoft becomes a bigger priority for Activision than it was before it was acquired by Microsoft. But ultimately they were bought out to generate their own profitability and grow their own business for the benefit of Microsoft and the entire industry in this way.
“So I don’t think you’re going to see any titles going platform exclusive…I don’t think it would make financial sense for them to take a Call of Duty and make it exclusive to Xbox platforms. And they certainly haven’t behaved that way in the past and I think that’s true of all the other mergers and acquisitions that you see and I think you’ll continue to see cross-platform development. This will simply be done under the wing of the acquiring company, but they seek to maximize the profitability of that company’s business. And the way to maximize that profitability is to create a cross-platform footprint.
Sure, Tretton has a vested interest in making acquisitions seem like a good idea at the moment, but he’s also spent a lot of time at the helm of one of the biggest ships in the industry, so he has a clear idea of what could go wrong. With that experience and an eye on taking over a game company himself, Tretton wants to reassure that the increase in game M&A deals is ultimately not a change that will hurt gamers. On the contrary, he hopes it will result in bigger and better games, and more.
“Gaming industry competition is not other game companies, now is the time. There are still only 24 hours in a day. You need to sleep. And gambling is much more of a threat for other forms of entertainment than for other gaming companies. If you spend more time gaming, you spend less time watching TV.
“[But] the people who over-index in games are also the people who over-index in movie attendance… and everything else, so these are just very voracious consumers who are going to support any form of entertainment that interests them… These acquisitions of these big multi-billion dollar companies are just showing an ever-increasing commitment to gaming. If I’m a gamer there are more and more people interested in my entertainment dollar and if they want my entertainment dollar they better give me something really fun to do with my time . I see this as signs of people supporting the industry and supporting their hobby, not narrowing their choices.
Rebekah Valentine is a reporter for IGN. You can find her on Twitter @duckvalentine.