How China Powerhouses Are Entering the West via M&A and Investment

I was invited as a speaker in a panel session about M&A and investment opportunities in the recent Casual Connect (7/19/2016). The topic was “East to West – How Asian Powerhouses Are Entering the West via M&A and Investment” (1). The panel was great and drawn a lot of discussions among folks from prestigious China game companies including NetEase and Perfect World, and a leading China-based investment bank, CVCapital, which I believe worthy to share my afterthought of this topic publicly. Even though the topic is about Asian companies, since all companies' representatives attended the panel were based in China, I would say the discussion is more about China's perspective.

2015 was the worst year regarding games related investments and M&A in the recent decade, dropped 81% from 2014 (2).

A good news is that 2016 would be a great year. M&A alone, in the game sector up to July, hits a record of $25 billion, which increases over 12 times compared to the rate of deal making in 2015 (3).

Game Investment and M&A from 2005 to July 2016 (Source: Digi-Capital)

One of the biggest drivers of the record was a Chinese company, Tencent, with the $8.6 billion acquisition of 84.3% of Supercell. So, just like the first question of what we had been asked in the panel: Why Chinese companies want to enter the Western gaming market?

There are push and pull factors.

First, although the China game market surpassed the US being number one in the world since 2015 (4), the western game market is still huge. Take US, Canada, EU countries, and all other western markets into account, the entire western market is actually larger than the China market alone, which reaches around $50 billion in 2016 (5).

China Game Market vs. Western Game Market 2016 (Source: Newzoo)

Second, some Asian companies, like ours, are doing pretty well in China and are still growing steadily, which makes sense to pursue opportunities in other markets including the West.

Third, the China market is highly competitive. Only games with truly high quality could standout. While there are talented development teams in China, more talented development teams are out there in the West with AAA game development experiences. So, it’s a good idea to look for a talented team to work together to create high quality games for both the Western and Asian markets.

For Seasun Games, the key driver of investment/M&A in the West is the availability of talents here. In recent years, there are many studios closed and experienced large scale layoffs. The names include competitive developers such as Zynga, EA, Microsoft, and the very recent Disney gaming division, Avalanche, which means many great people and teams are available and waiting for resources to create their own games or projects.

For investment, we basically invest in talented teams that we trust, which means those team members have to have past success experiences and demonstrate an insightful and creative vision for future game development.

For M&A, we will also consider their existing projects and assets, to see if they can fit into our long term strategy.

For many times, people asked me if we would like to bring our successful games in China to the West. My answer is “No”. Simply because games from China rarely find a place in the west. I personally witnessed many companies that tried to bring their successful games from China to the West and failed. There are many reasons behind, and I can write another post for that if people show interest in this topic. Simply put, it includes the difference in taste, culture, and monetization mindset between East and West. But vice versa, there are many examples of western games that go popular after entering the China game market. One of the reasons is that China gamers are more adaptive since they started playing games from other countries including the US and Japan a long time ago. That’s why I believe working with talented teams in the West for both the Western and Asian markets makes sense.

The increasing investment and M&A deals sounds great, and the increasing interests of Chinese companies getting into the West sounds exciting as well. However, what do these trends mean to individual game development teams or established teams looking for investment? What they have to do to catch up to the rising wave?

My recommendation is to form a team with past successful experiences, and come up with a sound idea that the team can really develop from start to end.

Attending the Chinese game conference - GDC China or ChinaJoy, or local meetup groups held by Chinese VC or game publishers to meet with potential partners from China.

Just like choosing a target for investment or M&A, there are many criteria when it comes to choosing a potential investor or partner. I only mention two of them here. First, know what you want to achieve. Second, choose a partner that could give you all the autonomy you want. I saw many Chinese companies invested in teams in the West and directed what that team had to do, what games they had to make. That’s exactly the same ending of how successful China games failed in the West.

If you are a team of experienced developers, I’m open to any discussion regarding what we can do to help you succeed in your next mobile game.

Reference:

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About Seasun Inc 

Seasun is a leading Chinese online games publisher focused on creating high quality games/game engines that push the boundaries of player experience in action entertainment. The company is also involved in small-medium sized investments for game studios worldwide. We have recently started up our U.S. studio in Redwood City, CA to create top quality content for the western market.

Seasun has shipped many successful titles, including the popular MMORPG series JX (http://jx3.xoyo.com/), the MMOARPG titles First Myth (http://fs.xoyo.com/index1) and CQ (http://cq.xoyo.com/), along with our FPS MAT (http://xd.xoyo.com/). The “JX” series has grossed more than $250 million and has achieved a daily active user count of 3.3 million. We are currently building a special team of highly talented people to create the technology for our next-generation MMOARPG at this studio.

About Kingsoft

Kingsoft, Seasun’s parent company, is publicly traded in the Hong Kong Stock Exchange (SEHK: 3888) with market value of 3.8 billion USD. Kingsoft has created 3 other subsidiaries alongside Seasun: Cheetah Mobile (NYSE: CMCM), WPS Office, and Kingsoft Cloud Service. Kingsoft has over 4,000 employees worldwide.