In a landmark year for the gaming industry, 2023 witnessed a record-breaking $86 billion in disclosed value for closed deals, with Microsoft's long-anticipated acquisition of Activision in Q4 playing a pivotal role. The Drake Star Global Gaming Report Q4 2023 reveals unprecedented deal values, strategic acquisitions, and significant funding rounds, setting the stage for a dynamic 2024. In this article, we summarize key findings from the report and highlight important insights for the future of web3 gaming.

The gaming landscape saw unprecedented growth, registering a total disclosed value of over $20 billion in 960 announced deals throughout 2023, signaling a return to pre-COVID levels. M&A deals numbered 163, with over $10.5 billion in disclosed deal value. Savvy Games Group's acquisition of Scopely for $4.9 billion claimed the top spot, followed by Kahoot's $1.7 billion acquisition by a Goldman Sachs consortium and Tencent's majority acquisition of Techland for $1.6 billion.

PC/console dominated M&A activity with 44 deals, closely trailed by mobile (37) and platform/tools (25). Financing rounds for private companies reached over $3.5 billion in 750+ rounds, mirroring 2020 levels, with mobile (168), blockchain (159), and platform/tools (143) being the most active segments. Notable financings included VSPO ($265 million), Candivore ($100 million), and Second Dinner ($100 million).

The Drake Star Gaming Index displayed a gradual recovery (11.5%) throughout the year, outperforming broader markets in the first seven months but sliding below in the second half. The VanEck Video Gaming ETF closed the year up 32.4%.

Overview for Q4 2023

M&A activity surged in Q4 with 43 announced deals, a significant uptick from the previous quarter's 33. While lacking large deals, smaller/midsized deals remained robust. Notable Q4 deals included Aonic/nDreams, Keywords/The Multiplayer Group, MTG/Snowprint, and Devolver/System Era.

Private financing in Q4 reached over $600 million in 162 deals, converging towards pre-COVID levels. Highlights included Animoca Brands ($50 million), Leonardo.Ai ($47 million), Strikerz ($40 million), and ON ($25 million). In public markets, gaming companies rebounded strongly, with the Drake Star Gaming Index growing over 13%. Singapore-based Grand Centrex Limited (GCL) announced a $1.2 billion SPAC deal to go public on Nasdaq.

Key Headlines for Q4 2023

M&A:

• Aonic Group, a gaming conglomerate, acquired a prominent virtual reality game developer, nDreams for $110M to further expand its position in VR and mixed reality games landscape.

• Keywords Studios, a global provider of game and entertainment services, purchased The Multiplayer Group, a UK-based multiplayer game development studio, for $97M to further strengthen its “Create” division.

• Modern Times Group acquired a majority stake in a developer focused on free-to-play mobile midcore games, Snowprint Studios, for $45M providing them with tools and knowledge to diversify revenues and expand its user base.

• Devolver Digital acquired System Era Softworks, an award-winning, multiplatform video game developer, for $40M extending its reach beyond premium indie titles leveraging System Era’s knowledge of Expandable Game style development.

• Atari, one of the most iconic gaming industry brands, bought Digital Eclipse, a studio that specializes in preserving and rereleasing retro games on modern hardware, for $20M expanding its internal development capabilities.

• Xsolla acquired Lighstream, Rainmaker and api.stream to further expand its reach to influencers through Xsolla Partner Network.

Fundraising:

• Animoca Brands, a game publisher with hundreds of investment in web3 games, raised $50M from Saudi Arabia’s NEOM to build web3 enterprise service capabilities with global commercial applicability.

• Leonardo.AI, a generative AI content production platform, received $47M financing from Blackbird, Side Stage Ventures, Smash Capital, TIRTA Venture, Samsung NEXT and others to continue building tech and team to empower creativity around the world.

• Strikerz, an international gaming company working on UFL football game, raised $40M from Christiano Ronaldo to revolutionize the interaction between football fans and the gaming world.

• GameOn Technology received $25M from Equiam, B3 Capital and others to help enterprises productize generative AI chats.

• Noice, games livestreaming company, raised $21M from Bitkraft, F4 Fund and others for promoting the platform and growing its team.

• Neon Machine, extraction shooter Shrapnel developer, raised $20M from Polychain Capital and others to continue game development.

Public Markets:

• Grand Centrex, a Singapore-based video game publisher and distributor, signed an agreement to go public via merger with RF Dynamic LLC, a special purpose acquisition company, valuing Grand Centrex at $1.2B. The company will be listed on Nasdaq under “GCL” ticker.

• Aonic Group issued $70M worth of senior secured callable floating rate bonds to finance the investment in the remaining recently acquired shares in nDreams. The remaining proceeds will be used to finance general corporate purposes of the Group.

Market Outlook for 2024

Following a post-COVID shift to pre-COVID deal activity levels in 2023, Drake Star predicts a steady increase in M&A activity in 2024. Key players include Tencent, Sony, Scopely/Savvy Games, Keywords, and Take-Two. Savvy Games is expected to deploy more from its $38 billion earmarked for gaming M&A and financings. With a tightening regulatory environment in China, Tencent and other Chinese strategics are anticipated to increase investments in Western markets.

While large M&A deals are expected, an uptick in smaller to midsize deals is forecasted. Private equity firms eyeing lower valuations may take several gaming companies private. Drake Star anticipates a healthy amount of seed/early-stage financings with a focus on AI/tools and AR/VR. Entrepreneurs are likely to prioritize early profitability, and the crypto gaming market is expected to expand in 2024, driven by the appreciation of gaming cryptocurrencies like Solana.

With improvements in the public gaming market in H1 2024, IPO-ready gaming companies are likely to restart their going-public efforts in H2 2024. The future promises a dynamic landscape with evolving trends and strategic shifts in the gaming industry.

Relevance to Web3 Gaming

As the gaming industry embarks on a new era of possibilities, the findings of the Drake Star Global Gaming Report Q4 2023 hold particular significance for the realm of web3 gaming.

The record-breaking deals, strategic acquisitions, and robust financing trends outlined in the report not only underscore the resilience of the gaming market but also shed light on the evolving landscape of web3 gaming. With substantial investments in blockchain, AI, and AR/VR, the industry is poised for a transformative journey. Entrepreneurs seeking profitability early in their ventures align seamlessly with the ethos of web3, emphasizing decentralization, transparency, and user empowerment.

As the crypto market gains momentum and popular gaming cryptocurrencies witness steep appreciation, the fusion of gaming and blockchain technologies is set to redefine user experiences. In 2024, the stage is set for web3 gaming to thrive, with innovative startups, strategic acquisitions, and a renewed focus on early profitability shaping the narrative of this exciting chapter in gaming history.