Frost & Sullivan believes that the recent announcement of SoftBank's acquisition of 51% of Finnish gaming company Supercell for US$1.5bn is a very positive market development for both parties, as the combination of the two companies will create a new market leader in the cutthroat US$12.5bn industry which should increase at a compound annual growth rate (CAGR) of 19.1 per cent (2013-2018) to reach US$30.1bn in 2018.
Mr. Marc Einstein, Industry Principal, ICT Practice, Asia Pacific at Frost & Sullivan said that the acquisition of the Supercell stake combined with SoftBank subsidiary GungHo Online Entertainment creates a very unique company with a distinct competitive edge.
"The global game industry is quite divided as Japanese developers tend to be dominant in the domestic market and weak outside of Japan while non-Japanese developers are weak in Japan and strong elsewhere. This started to change when Supercell and GungHo started cross promoting each other's products in mid-2013, but now for the first time we have a company that is extremely popular in Western markets coupled with another company that is extremely popular in Japan."
Mr. Einstein also said that the two companies will enjoy significant synergies as they have unique strengths which complement each other. Supercell has done remarkably well in the iOS market by promoting a "tablet first" strategy and optimizing its games for the iPad, tablets have yet to gain mass adoption in Japan which could aid GungHo going forward. Similarly, GungHo has expertise in Android development as the Japanese smartphone market is heavily comprised of Android devices which Supercell has relatively little experience in having launched Android games only this month.
He said the move will be equally positive for both companies. From SoftBank's side this acquisition represents a continuation of the company's overseas acquisition and partnership strategy which has included companies like Yahoo!, Alibaba and more recently Sprint. In addition to further diversifying its revenues away from a shrinking Japanese mobile market, the combination of two successful game developers and two of the largest mobile networks in the world could yield some interesting synergies going forward.
Similarly Supercell is receiving an excellent valuation for its business in an industry where extreme competition can change the fortunes of a company in a matter of months. Supercell was valued at roughly US$3.0bn, which in comparison to another Finnish company Nokia's handset division was valued at US$5.1bn in the same timeframe. This presumably represents an excellent return for Supercell who is backed by several venture partners.
Hopefully this will be a wakeup call to operators globally to invest and nurture new business areas, particularly in the digital media space,"Global mobile service revenues will actually start to decline in the next four or five years, and while buying a gaming company is not an option for all mobile operators, or even a good idea, this transaction underscores the fact that mobile operators need to be more forward looking” he said.
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