MS and Activision Blizzard: Leveraging the Rise of M&A Activity Within the Gaming Industry
Unless you’ve been sitting under a rock over the last couple of months, you probably know that the value of M&A deals within the gaming industry is skyrocketing. Sony has recently purchased a game development company Bungie for $3.6 billion. Take-Two Interactive, a company that owns the Grand Theft Auto developer Rockstar Games, is acquiring a mobile gaming A-lister Zynga for $12.7 billion.
The biggest chunk of M&A activity in the gaming industry happened when Microsoft agreed to buy Activision Blizzard for $68.7 billion in a deal that was marked as the largest game developer acquisition to date. Industry experts are regarding this as a historic merger, considering the size and rich history of both companies.
(Graph Source: Pitchbook Data)
2021 was a great year for M&A deals in gaming. Over 200 deals took place with over $25 billion being invested and transacted, but the above mentioned deals are likely to dwarf these numbers in 2022. All this activity broke records in the M&A sector across all industries, not just within the video game development landscape.
Activision: A History Blighted, But Not Forgotten
Large video game publishers like Activision usually make a series of strategic moves in order to stay ahead of the competition. In the gaming industry, this competition is considerable to say the least. Mind you, Activision has a long and impressive history, all the way from its humble beginnings in 1979 to its historical merger with Vivendi (in 2008) — a merger which also encompassed the acquisition of one of the most influential video game developers, Blizzard Entertainment (creative minds behind brilliant games like Diablo, StarCraft, World of WarCraft, Overwatch and so on). Activision Blizzard was formed, and it started to devour a huge number of smaller publishers and development studios including Infinity Ward (famed for its Call of Duty: Modern Warfare series), Sledgehammer Games, Toys for Bob, Treyarch, Vicarious Visions, and others.
Unfortunately, the publisher soon started making questionable decisions concerning many of the video game franchises that were now part of their library. One of the biggest criticisms originates from the huge community of passionate gamers, following the company’s sudden shift in policy towards in-game monetization. This specifically relates to Activision Blizzard’s approach to microtransactions — which have been causing a massive rift between consumers and the more greedy publishers out there. For instance, Activision started relying so heavily on the loot-box monetization model for a variety of widely acclaimed multiplayer and single-player games, that it slowly began to ward off fans. One of the more recent examples is the release of the mobile game, Diablo Immortal, which falls into the catalog of a loot box based game. In some countries, such features do not comply with the restrictions and regulations regarding gambling. For that reason, countries like Belgium and the Netherlands have banned the game from release.
Behind a Video Game Publisher’s Iron Curtain
If you think that’s bad, there are other hard facts surrounding Activision Blizzard. The company’s recent years were turbulent, and have involved a number of incidents. The video game giant faced several lawsuits for sexual harassment, retaliation and discriminatory workplace practices. In March 2022, a federal judge approved the Activision Blizzard sexual harassment settlement.
Company CEO, Bobby Kotick himself stands accused of knowing years about the sexual misconduct and doing nothing about it. Eventually, and in light of these conflicts, Kotick confirmed a zero-tolerance policy against harassment and $250 million investment specifically for hiring gender diverse talent.
Regardless, of the publishers checkered history and lousy decision making, financially they were doing quite well thanks to the popularity of some of their video games.
All heads started to turn when Microsoft announced its plans to acquire Activision Blizzard back in January 2022. “Today’s overwhelmingly supportive vote by our stockholders confirms our shared belief that, combined with Microsoft, we will be even better positioned to create great value for our players,” said Activision Blizzard CEO Bobby Kotick. He added that the deal would provide “even greater opportunities for our employees, and to continue our focus on becoming an inspiring example of a welcoming, respectful and inclusive workplace,” added Kotick.
Despite the company’s wombly reputation and generally no love from the gaming community, Microsoft’s acquisition turns out to be a lifeline for Kotick’s company. Nonetheless, Kotick is expected to step down as soon as the merger is complete. As for the company itself, the deal with Microsoft could not have arrived at a better time.
What’s Behind This Uptick in Gaming M&A Activity?
During the pandeming, the gaming industry reached record numbers. According to a recent Deloitte report, it is expected that the console market will generate over $80 billion in 2022, which is a 10% increase when compared to 2021. The uptick is also being influenced by the entire gaming ecosystem evolving from one-off sales to a more complex environment, where the focus shifted to online multiplayer gameplay, with microtransactions and subscription-based models taking over almost completely.
The Deloitte report also indicates the digital purchase sales share (think downloads, subscriptions, in-app payments, games passes) are expected to grow from 65% to 84% by the year 2025.
The gaming market is evolving, but growing rapidly, which prompts industry leaders to use M&A activities as a major way of gaining an advantage over direct competition. Microsoft is currently among the biggest trailblazers in this growth model, and the question that is being asked is: how can other players in the gaming industry follow suit and be sure they are locking a low-risk, high-yielding M&A deal?
The answer: the use of data analytics for M&A decision-making processes.
Education Comparison — Microsoft vs Activision Blizzard
Traditionally, developing an acquisition strategy is a lengthy and challenging process. It’s something that major companies and investors often keep under wraps. However, by analyzing each step of the merger process, such as workforce evaluation, one can easily pinpoint unique pieces of data towards valuable workforce insight. This brings us closer to the specific mechanisms that take place before and during major M&A deals. What helps these companies ease the decision-making process during these deals? It could be anything from employment data to education.
In this instance, we are looking at education degrees. Around 59% of people employed at Microsoft have a Bachelor’s Degree, and that goes for almost the exact percentage of employees at Activision Blizzard. Meanwhile, 33% of employees at MS have a Master’s Degree. At Activision Blizzard, however, 28% of hired people have a Master’s Degree.
We have determined these thanks to the powerful Osterus workforce analytics software. But wait, there’s more.
So, What’s the Situation with Gender Distribution?
Even with all of the aforementioned controversies linked to Activision Blizzard, it would appear that the merger with Microsoft might be the remedy the corporation needs. When we use Osterus to examine various aspects of these large businesses, it’s intriguing to note that both companies have very similar numbers when it comes to gender distribution. At Microsoft 69.5% of employees are male, 28.9% are female, while looking at Activision Blizzard we see that 64.1% are male and 35% are female.
Based on that data we can conclude that both of these corporations would benefit greatly from balancing these numbers towards a more evenly distributed workforce (gender wise). Another conclusion can be made. These numbers in gender distribution may not be a coincidence, but rather one of the main contributing factors for the deal to actually take place. Of course, while this may be a tad speculative, there’s no telling what other interesting deductions and insights can be made by diving into valuable data gathered via Osterus.
A Peek at Employment History
One of the more intricate parts of any merger of major companies is the employment history of the workforce. Osterus lifts the fog on such matters by offering a glimpse of the previous companies that have been a home to employees, before they joined the ranks of Microsoft and Activision Blizzard. It’s interesting that employees at Microsoft have previously worked at companies like, Amazon (5,59%), IBM (4,81%), Accenture (3%) and Intel Corporation (2,68%).
Meanwhile, employees at Activision Blizzard have been working a lot within the gaming industry, previously being hired by companies such as Electronic Arts (5,08%), The Walt Disney Company (6,02%), and interestingly enough Accenture (4,05%) as well.
Creativity Behind the Scenes of Job Experiences
In terms of average experience length in specific job positions, people spent a significant amount of time honing their skills in professions like art and design, as opposed to people working in software development and software engineering. For example, in Activision Blizzard employees in the category ‘art’ spent over 13.2 years perfecting their professional knowledge. Microsoft also seems to be investing in people who spent over 8. years in design.
Whereas for professions like software development, Activision Blizzard appears to employ people with approximately 4.7 years of experience. For the same profession, Microsoft is seen hiring folks who have around 6.5 years of working experience — which is still considerably less than the average length of experience in art and design.
Workforce Data Speaks Volumes Potential M&A Deals
The use of data analytics technologies for M&A has increased vastly over the last couple of years. So much so, in fact, that it has become a critical tool for creating fruitful Merger and Acquisition strategies.
This growth of the gaming-based M&A market is in part happening because companies now have access to valuable workforce insights provided by workforce data analytics platforms — like Osterus — that are helping them better evaluate the human capital behind a company they are looking to buy.
How to Use Osterus AI-Powered Analytics to Make Smarter M&A Deals
Let’s take a look at the aforementioned Microsoft/Blizzard deal. Surely, you don’t assume that Microsoft analyzed only the purely business-based components of the M&A equation that is $86 billion big.
They definitely took a closer look at the granular workforce data that hides behind the Activision Blizzard brand. On the same note, Osterus clients are using our platform as one of the key channels to deeply analyze workforce data and gather invaluable Investment and M&A insights especially to assess the elusive “cost of human capital” metric.
With Osterus, businesses can:
- Analyze portfolio companies and learn about their workforce structure.
- Learn where they hire from.
- Find out where the employees went to universities, how much experience they have, how long they stay at one company, etc.
- Understand which companies are most lucrative to acquire, merge with, or invest in.
The Importance of Assessing Human Capital
Businesses that use Osterus data points and reports are capable of analyzing the human capital of target entities which helps them figure out the true value of M&A and investment opportunities.
For example, with deep insights into a company’s workforce structure, you can better understand all the data points around education, skills, and work experience a company’s workforce has, as well as better understand the industry and the market it belongs to. This will help you detect general workforce patterns that speak volumes about a potential M&A deal.
The Osterus crew is currently working on a metric that should help investors and M&A professionals put a legitimate price tag on the cost of human capital, but we can already do wonders for your M&A or investment strategies with our user-friendly data analytics software.
Take a look at the Osterus Intelligence for Investors and M&A Professionals for more information and feel free to schedule a demo with Osterus experts to experience first-hand what this platform can do.