Private Equity Fuels Consolidation in Video Game Industry

Consolidation is sweeping through the video game development industry as private equity groups back the formation of "super-developers," potentially paving the way for an initial public offering in an industry dominated by listed publishers. Foundation 9, a game developer based in the San Francisco Bay area, has announced the acquisition of Amaze Entertainment, adding to its portfolio after already acquiring Shiny Entertainment. This trend is driven by increasing costs for developing games for next-generation consoles and platforms, with stand-alone studios seeking refuge by becoming in-house developers or joining a consortium of developer studios.

Key Takeaways:

• Foundation 9, formed in 2007 from the merger of Backbone Entertainment and The Collective games studios, has acquired Amaze Entertainment and Shiny Entertainment, adding to its portfolio of four studios.
• The acquisition of Amaze Entertainment makes Foundation 9 the largest independent game developer, competing with BioWare/Pandemic, which was formed through a partnership between two studios.
• Private equity groups, including Elevation Partners, are backing the consolidation of game developers to create "super-developers" that can go public.
• The trend towards consolidation is driven by increasing costs for developing games for next-generation consoles and platforms.
• Stand-alone studios often face high risk if a single game fails financially, leading many to seek refuge by becoming in-house developers or joining a consortium of developer studios.
• The formation of "super-developers" spreads risk and creates more stable, well-capitalized developers, providing an alternative to publishers funding individual studios.
• Foundation 9 plans to continue acquiring more studios to become a major player in the industry.

Statistics:

• Foundation 9 has received up to $150m in funding from Francisco Partners.
• Elevation Partners is investing $300m in the partnership between BioWare/Pandemic.
• Private equity groups have backed the consolidation of game developers to create "super-developers" that can go public.
• $150m: Up to the amount of funding provided by Francisco Partners to Foundation 9.
• $300m: The amount invested by Elevation Partners in the partnership between BioWare/Pandemic.

Sources:

• Foundation 9 announces acquisition of Amaze Entertainment, GamesIndustry.biz, October 22, 2007.
• Elevation Partners pumps $300m into BioWare/Pandemic, GamesIndustry.biz, August 15, 2006.