19.04.2022

Why do mobile developers sell games to other teams?

About the reasons that push game developers to sell their own titles to other companies, in their column for App2Top.ru Yana Vesnina, M&A manager of ZiMAD, told us.

Yana Vesnina, M&A Manager at ZiMAD
Games, like any business, don’t work by themselves.

They require constant support, and at least updates, regular traffic purchases, optimization of sales funnels, and so on.

So it turns out that no matter what the business is — successful or not — it requires money, time, effort, as well as expertise. This primarily affects why the team may decide to sell the product.

Why are they selling?

I will say right away that this is not a story about the implementation of a problematic asset. If someone has an idea to sell a game because it is poorly made or the audience does not like it, then I always advise you to throw this idea out of your head.

No one will buy a distressed asset. A bad asset is simply not needed by anyone from the point of view of M&A. There should always be a business growth point in the purchase.

It is just better to sell the game at a time when everything is good with metrics, moreover, when there is any positive dynamics and prospects.

Focus on the following minimum indicators for mobile projects: LTV > CPI, RPD from $3-5, R30 from 5%. They can vary from buyer to buyer, from genre to genre, but for the most part these are basic metrics that the buyer usually starts from.

Why go to the sale of a product that is doing well? In short, to provide new points of business growth. That’s just the approaches to finding these points are different. I identify four main positions with which developers come to the idea of selling.

1. Change of direction/niche

Often games are sold to direct resources to another business line or game genre.

For example, the team has been developing casual games all their life, but later decides to take up a midcore game. Due to the change of focus, the developer loses the opportunity to pay sufficient attention to casual projects. The sale will not only give them a new life, but also provide the studio with additional resources and allow them to devote more time to a new project.

Another similar example: the team has two or three main projects and a group of good games with which it works on a residual basis. Naturally, they are not constantly being purchased and tested. It seems logical to sell them in order to use the money received for the development of major projects or R&D.

2. The need for expertise

If the project stops developing (does not grow in performance and earnings), then a fairly common scenario is when the owner sells the project to a more experienced team that helps to unlock its full potential.

The sale here can take place in a completely different form. For example, in the format of a transaction with a foreign company. In this case, the latter takes over the operation of the product, thereby allowing it to survive in a difficult economic situation, taking over all communication with foreign partners.

Another possible scenario under this approach is joining the M&A program of a large company. Many of them in this case take the project, leaving the operation to the team.

3. Access to partners with IP

Sometimes a developer company can get permission to use a world-class high-profile franchise in a product only if its product is transferred to the disposal/partial disposal of another company.

4. Passive income

With a number of companies, you can negotiate the sale of the product not only for a fix, but also for the opportunity to receive a percentage after the transfer of the game. Here we are talking about additional royalties after the transaction is closed.

This approach will provide owners with a passive resource for some time, which can be put into a radically different business direction.

Example: some sellers, despite the success of the game, are not ready to engage in the gaming business as such and increase their expertise in it.

What options for selling games are usually resorted to?

The scenario strongly depends on what made the developer sell the project and to whom he sells it. Just below, we consider only those options when it comes to a deal with another gaming company, and not with one or another fund.

1. Partial sale

Only a share of the project is sold, you get an additional business partner. The operation remains with the former owner.

2. Full transfer of the project (or project library)

The owner sells all content, code, and application rights. In this case, the buyer most often gets at his disposal an application already available in the store, which can be immediately promoted, upgraded and, importantly, continue to develop.

Important: when buying a project, any company evaluates the code, engine and conducts a huge scoring of metrics and viability of the project. The purchase occurs only if the new team can understand the existing code.

3. Selling a project with a team

Not only the project and the rights to it are transferred to the disposal of the new owner, but also those who participated in its development or creation.

A fundamental point: most often we are talking about the transfer of one of the studio teams, and not the whole one. In the latter case, we are already talking about M& A, and this is a completely different story.

4. IP sale

In the event that the owner’s project has achieved serious success under a recognizable title (IP), it makes sense to sell third-party companies the rights to use it.

Example: the developer made a series of games based on one story. IP has a strong player base, but the project has an old infrastructure that is difficult to work with. It makes sense to sell IP and assets, on the basis of which the buyer will make a remaster.

What do they pay attention to when choosing a buyer?

The determining factor is the purpose of the transaction.

1. We need money here and now (to reinvest the business)

In this case, you can sell the project to any buyer within the framework of the proposed multiplier.

It is worth recalling here that when studying the project, the buyer will request complete data about the game and check how much he can independently operate with them (with his own resources or through you). That is, your project should be working under any circumstances.

Keep in mind that the buyer can continue to ask questions about the functioning of the game even after the transfer of the project: that is, the moment of moving the game to another account is not always the end point of your communication with the buyer.

2. The goal is to earn and ensure the further success of the project

In this case, the approach to choosing a buyer should be more detailed:

a) special attention should be paid to the terms of the transaction and the terms and formulations used in the text. It can be problematic to understand the subtleties and nuances yourself (especially if we are talking about a contract with a foreign company). Therefore, I recommend always resorting to the help of independent lawyers;

b) you should communicate with the buyer as much as possible, trying to find out all the nuances, scenarios, his approaches to business and products. Understand who his partners are within the framework of marketing and product strategies. This will give a complete picture of him. Communication between the seller and the buyer is the determining factor of any transaction;

c) if the team is looking for expertise, pay attention to the level of the partner’s portfolio, in which genres he has expertise, and also whether it correlates with the product that you have on hand. Especially important is the knowledge of the buyer’s marketing and the audience — how the buyer will work with the product in the future.

How games are evaluated when buying

The score is determined by a number of different factors, including daily active users (DAU), income, the “age” of the game in terms of genre and development, as well as the niche of the product (how busy it is and how many competitors it has).

Ideally, to sell the game, you need to provide the buyer with a number of documents for evaluating the game (at least: PnL, analytics, revenue and product breakdowns. They will be the fastest to tell about the prospects of the game). However, each buyer requests its own set of metrics and documents.

Revenue and profit may be important, but it doesn’t always come down to them alone. Depending on the strategy of the buyer, he may attach more importance to one or more factors, or may even come from something else. Your task is to choose the buyer who will bring you the maximum profit within the business.

For example, some buyers only want to increase their portfolio of projects (growth due to asset acquisitions), others consider projects from the point of view of free slots for advertising inventory, and others are trying new genre niches.

***

So, below is a short summary for a successful deal. Define for yourself:

  • what strategic task should the sale of the project solve?;
  • which sale option is right for you and how much do you want to be involved in the project in the future;
  • what kind of buyer do you need;
  • by what parameters your buyer will evaluate the project.

The main goal is to make a profit on win—win terms.

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