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EGD News #32 — Peak acquisition and founder psychology

This news was sent out on June 5th 2020.

Here are the things that I’ve been excited about this week.

Peak Games acquisition and founder psychology

This week’s big news was that Zynga acquired Peak Games, the developer of mobile games Toy Blast and Toon Blast, for $1.8bn 💰

I wanted to reflect on my experiences of M&A and what matters in these acquisitions.

Zynga has learned from its previous acquisitions. They are now acquiring companies that have high revenues from products where long term engagement is stellar. A game like Empires & Puzzles will not be churning players, as the game economy is so deep that there’s an endless number of player goals to go after.

Eric Seufert summed up Zynga’s M&A strategy very clearly in his article from April 2020.

1. Acquire top-line revenue growth by paying premia for proven titles with ample upside: With Gram Games (Merge Dragons!) and Small Giant Games (Empires and Puzzles), Zynga acquired proven properties with upward momentum at premia and funded their user acquisition to deliver immense top-line revenue growth;

2. Devolve publishing power to satellite studios: rather than centralizing critical operational functions like user acquisition and live operations, Zynga’s acquired studios manage these capabilities themselves, with minimal distance from the game teams;

3. Focus existing publishing capabilities on growing forever franchises and its social casino business: Zynga has consolidated its first-party development into its existing live portfolio and the social casino category, fully exploiting its institutional knowledge and avoiding costly, distracting experimentation outside of the areas in which it has the demonstrable competitive advantage.

Eric Seufert, April 27th 2020, How Zynga executed its stunning turnaround

Zynga’s recent M&A strategy

​Zynga started acquiring companies over ten years ago. Their hit gaming IP Farmville was originally an acquired game, from way back in 2009. Along the way, they picked up the best practices.

One of the top concerns is to retain talented people in the acquired company. How do you keep the founders motivated after you’ve bought their company?

My experiences from M&A

In my career, I’ve had the pleasure of sitting on both sides of the table. Being both the acquired and the acquiring company. Most of the discussions have been with pre-revenue companies, where we wanted to grow by bringing in the talent, the technology, and the games they were working on.

Usually it’s been an aqui-hiring discussion, where the main goal is to get the talent. Even if a product doesn’t work out, the game developers will be incredibly valuable. Here are some lessons I’ve learned:

  1. Without proper incentives, the people involved will leave. Stock and cash is one thing, but giving autonomy and agency to the studio to work on its own is crucial. Cultural alignment between the acquirer and the acquired needs to be in place. Otherwise, people will leave, mainly once they’ve vested some of their stock from the acquisition.
  2. It’s easy to find broke companies with talent. The hard part is to keep them motivated, since most times, the founders had started their own company to be their bosses.
  3. It’s hard to acquire revenue-generating companies. Reason: there aren’t many companies who have significant momentum, but want to grow with the help of a more prominent company.
  4. When aqui-hiring studios are at the early stages of the company’s history, there might not be a tight-night team in place. In these situations, it resembles more of a hiring process.
  5. Prepare for people leaving. After the stock has vested, it 90% likely that the founders will start leaving.

Acqui-hiring and Zynga’s model in 2010

​In every acquisition, the entrepreneur mindset needs to be taken into consideration. There’s more to the founder’s psychology that I want to touch upon.

Founder psychology matters

Let’s take an example.

You are a founder at a mid-sized games company. You’ve developed and launched several games. You have limited investor cash left. Then you figure out a hit game. A year later, you are highly profitable, and things are growing steadily. Everything you are doing, all the changes you are making to the game are making the game more successful.

But you are scared that it will not last. Even if it lasts, you’ll need to take risks to grow the company. Something could go wrong, and the numbers might start coming down. An opportunity to sell has come along from Zynga, and you decide to sell.

A year later, you are satisfied. You knew that you had built something special. The new HQ is letting you stay independent, make all the decisions, and the game is continuously doing better and better. Do you feel like leaving now to do something else, when things are this exciting?

Then we have OMGPop, the creators of Draw Something, which got acquired by Zynga in 2012. Draw Something had millions of players, but the boom only lasted for a few months, and then it died down. Long term retention was basically at zero. No one was playing it after Day-30. The founders knew that it was bust, and they left Zynga as soon as they could, with the stock and cash in their pockets. Zynga then shut down the office, one year after the acquisition.

These acquisitions are like revolving doors; people come in, but many who came in actually went back out again.What is different from these two cases is the long term success of these games that can rake up hundreds of millions in revenue as Hummingbird VC said in their post about the Peak deal, the long term retention in Toy Blast with unprecedented.

Peak’s extraordinary D90 retention is unheard of globally, in an industry where keeping any of your players still engaged after 90 days would have been deemed outstanding performance.”

Medium post: “Peak sale to Zynga drives 8.6x gross fund return for Hummingbird Ventures

Final words

In Zynga’s strategy, what can go wrong? Zynga has been learning the ropes of M&A for years, and they have an excellent team at the helm.

There are two concerns:

1. Key talent and founders of the acquired studios will leave. But how likely is this in the near future? These companies have games that are making hundreds of millions a year, and that is rare. If they can continue reaping the rewards, and the studios retain their independence, their own culture, they’re own incentives, why would the founders leave?

2. Will the studios be able to create new titles? Small Giant Games has been working on a modern war version of Empires and Puzzles. That game is still in soft launch. Time will tell if this focused approach on creating games in a single genre, like what Zynga is doing in social casino, will pay off.

One thing is for sure. More new M&A targets will pop up around the globe. As an example of rapid development and company growth: Small Giant Games didn’t take long to appear on the top-grossing charts.

New M&A targets to mention: Traplight, Reworks, Tactile Games, Moon Active, Wildlife Studios.

The new management at Zynga has only been buying studios with games that can engage player cohorts in the long term. Other areas of mobile gaming, like hyper-casual, will be on the radar as these companies build their institutional knowledge.


Sales Projections For Premium PC Games — We here at Elite Game Developers got the chance to work on a premium PC games sales projection spreadsheet with Jussi Autio, Co-Founder and Creative Director of Resistance Games. Jussi approached us with the idea of providing his knowledge on projecting sales in PC games so that the fans of Elite Game Developers could benefit from Jussi’s extensive understanding.

Here is the template that you can use for “Premium PC Games sales projections.” Jussi also wrote a guide to go along with the spreadsheet. Before diving deeper, please read the article.


EGD Special: Work from home for game teams — In this episode, we’re going to listen to the recording from a webinar that we here at Elite Game Developers organized in May of 2020. The topic was “Work From Home For Game Teams”. We had Sophie Vo, the Game Lead from Voodoo, on the webinar and both me and Sophie did a presentation on the learnings of working from home, how remote-first companies will be operating in the future, and what working from home has been like for gaming startups.

Articles Worth Reading

+ A Guide To Ltv – Part 1: Why It’S Important And How To Model It — Matt Frenchman from Sugar is covering the ins and outs of LTV in free-to-play. “Talk of LTV is never far from conversations about free-to-play theory, and it serves as a fundamental metric or value in numerous strategies and conventions around monetising free games. There is no way around it – to scale your game successfully you simply have to be on top of LTV – and how to model it.”

+ Not even wrong: ways to predict tech — Benedict Evans writes about inventions, new products, and how the roadmap to make them better, and possibly lead to a world-changing breakthrough. “The Apple 1, Netscape and the iPhone all looked like impractical toys that ‘couldn’t be used for real work’, but there were obvious roadmaps to change that – not necessarily all the way to the future, but certainly to a useful next step.”

+ Kippo raises $2 million for a dating app for gamers — There more interesting startups forming around gaming. “The company’s larger idea is to create a next-generation gaming app that modernizes the way that people connect and meet. While stereotypes of the lonely male gamer in a basement persist, CEO David Park said it’s perfectly normal for people to meet through their passions, such as playing video games. In fact, many people think gamers are new jocks, Park said.”

+ Quarantine is creating brand-new gamers — “Isolation won’t last forever, and when the economy finally opens up and we all have plans for weekend evenings again, Smith thinks he will continue to explore the culture. ‘I do think I’ve moved from game-curious to full-blown gamer,’ he explains. ‘Gaming feels like a much more satisfying use of time than it used to, but it’s also still really fascinating to me on an intellectual level as someone who is still relatively new to this world.’”

Something cool

+ John Williams – Superman – Making the score — This is an old recording of John Williams and the crew of Superman (1977) talking about the music for the movie. This is pure genius at work.

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