casual games; a strategic review of the sector
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Keygrowthfactors
Fundraising
Mergers&
Acquisitions
a uat on
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VentureCapital &PrivateEquityfirmsareactivelyinvestingin
thecasual
game
sector
Softbankfunds/companies BenchmarkCapital
Plusmany
others
ExplosivegrowthforGamePortals&OnlineMediaConsumption
Casualgames
are
games
for
the
mass
market
owpro uct oncosts orcasua games
Lowadvertising&distributioncosts Recurringrevenuebaseandscalabilityarethecriticalfactors
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moreappea ngto nanc a nvestors
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potentialtomeetthefollowing:
Diversified
Content Great games
Portfolio
Fast rowin rofitabilit driven b ame/subscri tion/one za on
virtual items revenues, advertising revenues (in-game orin-site) and search revenues
Platform
customers
Mana ement Management teams require strong experience in internet,
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game or en er a nmen sec ors
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34
deals
in
2007
with
over
$135m
raised
TrionWorldNetwork$30m
IGAWorldwide
$25m
K2Network$16m
Infocomm AsiaHoldings$14.2m
e wor ame n erac on 10m
AvistaPartnersNote: up to 15 July 2007; deals for 2007
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Total Deal Value (USD$ millions) Total # of Deals
266.1
36
34 35
40
240.0
260.0
280.0
167.7
30
180.0
200.0
220.0
135.9 20140.0
160.0
102.0
97.5
15
10
15
80.0
100.0
.
50.039.7
11.23 3
8
5
20.0
40.0
.
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00.0
2000 2001 2002 2003 2004 2005 2006 2007
YearNote: up to 15 July 2007.; deals where value is undisclosed are not included in total value but are included in # of deals
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rm o ea s
Intel Capital 8
Softbank funds/ companies 8
Benchmark Capital 7
IDG Ventures 6
Accel Partners 5
JVP 5
Granite Global Ventures 4New Enterprise Associates 4
Trinity Ventures 4
CDC Games 3
Greylock Ventures 3
Madrona Venture Group 3
Millenium TechnologyVentures 3
WPP related companies 3
AvistaPartnersNote: up to 15 July 2007.; deals include all individual deals and includes deals where the same VC may have invested in the same company but different deal
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Company type # of deals % of deals
Game Portal 8 23.5%
In Game Advertising 8 23.5%
Casual MMO 4 11.8%
Multi la er Network 3 8.8%
Online Game Social Network 2 5.9%
Online Fantasy League 2 5.9%
asua ame u s er .
Casual Game Developer 2 5.9%
Multiplayer Online Game Developer 1 2.9%
Episodic Game Developer 1 2.9%
Game Search Engine 1 2.9%
AvistaPartnersNote: up to 15 July 2007; deals include all individual deals and includes deals where the same VC may have invested in the same company but different deal10
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Morefundraisingdealsin2006inthesectorthan
anyother
full
year
Interestinthesectorbyfinancialinvestorsisatan
a
t me
g
GamePortals,InGameAdvertisingandCasual
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Date Acquirer Target
Value
Revenue
EBITDA
Jul-07 Popcap Retro64 na
Jul-07 CMP Technology How Machines Work na
Jun-07 Liberty Media Fun Technologies (47%) $99.3m 4.8x
Apr-07 Eidos Bluefish Media na
Mar-07 Electronic Arts Neowiz $105m (19%) 4.0x 15.0x
Feb-07 Vivendi Games Wanako Games na
Feb-07 Google Adscape Media na
-
Jan-07 Gigamedia TC2N $22.9m (40%)Nov-06 Realnetworks Atrativa $3.8m
Nov-06 Demand Media Intermix assets na
Oct-06 Boonty Gamehub na
Sep-06 Sony Gamepot (27%) $22m
Sep-06 Spill Group Zlong Games (majority) na
Aug-06 Fun Technologies CDM Fantasy Sports $10m 1.3x
Aug-06 Fun Technologies Teagames na
18dealstodateinpast12monthsworthover$460m18dealstodateinpast12monthsworthover$460m-
Jul-06 GaiaX APE Inc. $1m
AvistaPartnersNote: up to 15 July 2007 13
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Total Deal Value (USD$ millions) Total # of Deals
340.2
1716
300.0
320.0
340.0
.
2007istrendingtoover$400min
dealsfor
full
year
227.2 12
14
240.0
260.0
280.0
207.0
184.1 168.6
.
9 8
9
8
10
160.0
180.0
200.0
.
94.86
100.0
120.0
140.0
3
2
4
1
3
2
20.0
40.0
60.0
.
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0.0 . 00.0
1999 2000 2001 2002 2003 2004 2005 2006 2007
YearNote: up to 15 July, 2007; deals where value is undisclosed are not included in total value but are included in # of deals
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Acquiror # of deals
Fun Technologies 6
Electronic Arts 4
Realnetworks 3
Shanda 2
Big Fish Games 2Media General 2
Viacom (Atom Entertainment) 2
Popcap 2
Gigamedia 2
Vivendi Games 2
AvistaPartnersNote: up to 15 July, 2007; deals include all individual deals and includes deals where the same VC may have invested in the same company but different deal15
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PurecasualgameM&A
Oberon,
Bigfish,
Popcap have
been
the
most
acquisitive ar ouspotent a g antsmayacqu re Videogamepublishers
asa e ca e casua us nessnow as ogo.com
Eidos hasacquired1company
Onlinecontent/servicecompanies
Realnetworks hasacquired3companies&hasRealarcade
MicrosoftacquiredMassiveandhasMSNGames
Me ia/Entertainment ong omerates
MTVNetworks/ViacomacquiredAtomEntertainment
TimeWarner/AOLac uiredGames.com
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17acqu s t onsc ose n200 ;mostever
timehigh
Valueof
average
deal
size
can
only
go
higher
Consolidation will continue to grow inmomen um
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Date Acquirer Target
Transaction
Value
EV/
Revenue
EV/
EBITDA
Jun-07 Liberty Media Fun Technologies (47%) $99.3m 4.8x na
Mar-07 Electronic Arts Neowiz $105m (19%) 4.0x 15.0x
ug- un ec no og es an asy por s m . x
Mar-06 Fun Technologies WorldWinner $23m 2.2x
Feb-06 Realnetworks Zylom $21m 2.6x
Nov-05 Liberty Media Fun Technologies (51%) $144m 5.6x
Jun-05 Fun Technologies Fanball Interactive $22m 4.8x
Jul-04 Fun Technologies Skilljam $8m 2.2x
Jan-04 Realnetworks Gamehouse $35.6m 3.6x
Multiplesaredrivenby:
acquiror demand
growthrateoftarget
strategicvalueoftarget
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Onlinegamecompanieswanttoknow:
business?
a are s oo ng or nanon negamecompany
ForVCs,thequestionisthis: W attypeo on inegame usinesss ou I oo to
investin?
n e argeme acompan esas : Whichonlinegamecompaniesshouldwelookat
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acquiring?
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Whatis
the
Hol
Grail
in
thefutureofonline
ames?
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Currently,manypeoplebelieveitisWorldofWarcraftfromVivendi.
nottheHolyGrailofonlinegames onlyattracthardcoregamersandnotthemassmarket
WOWseightorninemillionsubscriberspalesincomparisontotheover50millionusersworldwidewhoplayMaplestoryfromNexon inKoreaortheover66millionregisteredusersofHabboHotelfromSulake inFinland.
PlusMMORPGs
do
not
have
much
of
alife
c cle
be ond
five
years.
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modelsarebest es eciall
iven
the
hu e
success
of
item
sellin
based
businessmodelsinAsiaandthegrowingsuccessofcompanieslikeThreeRings(PuzzlePirates)andK2
OnecompanytowatchisBigpoint aGermancompanywhichnowofferssevencasual
browserbasedgames.
revenuesbysellingitemsingame.
Onaverage,theyaregeneratingmorerevenuesper
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Therearemanyportalslikethisbutveryfewoftheseportalsaregeneratinganyseriousrevenues.
months. Aggregationasastandalonestrategydoesnotworkunlessyouarethe
num eroneortwop ayer
Whatisgoingtohappenwhencasualgamepublishershavetheowercontrolrevenueshares& ricin ?
Willnothappenovernightbutitwillhappenoncetherehasbeenmoreconsolidationinthesectorandthepublishersarelargeror
.
Contentownerswillalwayswinintheendandthisbusinessisclearlymoreaboutgreatgamesandthanaboutgreatdistribution.
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Somepeoplebelievethatpublishingahugenumber
ofdownloadable
ames
and
sellin
them
ever where
istheanswer. Butisthatreallyalongtermsustainablebusiness,given
t e arge(an rapi ygrowing)num ero own oa a egame
publishers
and
developers
,thereareinthemarketcurrently.
How
many
puzzle
games
can
the
market
support?
Andhowdoesaconsumerdifferentiateamongthem?
Doubtfulthatanyonewillsucceedlongtermwith
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,gameplay,interactivity,customization,VOIPcapability,anduser
generated
content
(games,
videos
of
game
play
and
avatars).
uss mp eway oma e r en s, n r en s, nv e r en s,an p ayw friends.
Mixofdifferenttypesofadvertising,includingbothonsitebannersandingamepromosorproductplacement.
myspace skype youtubemaple habbo
hotel
Holy
1st amewebsite
that
offers
all
the
ke
features
of
this
mash
u
will
indeedbetheHolyGrailofonlinegames.
Forgetabout10millionoreven50millionusers.
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Loo or100m onreg stere users oronegamewe s te28
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Lowerdevelopmentcosts,lessrisk&higherROI
PC
XBLA
PSPDS
Wii
GamePortals/Aggregatorsgrowinginpopularitywithconsumers;watchinglessTV;Advertisingisamajorsourceofrevenue
MixofAdsupported,casualgamesandpaidpremiumgames
Ingameadvertisingisanewsourceofrevenuefordevelopers/publishers
CasualMMOswillgrowie.Runescape
Businessmodelssellingitemsingamegrowingquicklyie Bigpoint
Social3dchatgameswillgrowie SecondLife,Habbo Hotel
Micropayments
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Raisemoneytogrowand/oracquire
u 2 us nessonownwe s esw a ocusoncommun y
Monetiseacrossotherplatformsbylicensingorinhouseformobile,
Sellitems
in
game
Buildadvertisingrevenues
oca ze
s es
or
ey
on
ng s
coun r es
Outsourceselecteddevelopmentpiecesoverseas
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Developgamewidgetsforsocialnetworksie.Bunchball
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Paul Heydon
Mana in DirectorAvista Partners
Tel: +44-203-178-6866
Email: [email protected]
Web: www.avistapartners.com
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This presentation was prepared by Avista Partners exclusively for the benefit and internal use of the Recipient in order to indicate, on a preliminary basis, the feasibility of a possible
transaction or transactions. This presentation is incomplete without reference to, and should be viewed solely in conjunction with oral briefing provided by Avista Partners. Thepresentation is proprietary to Avista Partners and may not be disclosed to any third party or used for any other purpose without the prior written consent of Avista Partners.
The information in this presentation reflects prevailing conditions and our views as of this date, which are accordingly subject to change. In preparing this presentation, we have relied
upon and assumed, without independent verification, the accuracy and completeness of all the information available from public sources or which was provided to us by or on behalf ofthe Reci ient or which was otherwise reviewed b us. In addition our anal ses are not and do not ur ort to be a raisals of the assets stock or the business of the Reci ient. Evenwhen this presentation contains a kind of appraisal, it should be considered preliminary, suitable only for the purpose described herein and not be disclosed or otherwise used without
the prior written consent of Avista Partners. The information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or
potential change of control, which may have significant valuation and other effects. Avista Partners LLP is authorised and regulated by the Financial Services Authority.
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