Opinion

Tech crash ahead? Call of Duty firm enlists British Candy Crush maker King for $5.9bn

7 min read

03 November 2015

Former deputy editor

US gaming firm Activision Blizzard has launched an assault on the gaming industry with the $5.9bn takeover of Dublin-born Candy Crush company King, which will see the British business join the likes of Call of Duty. We look at the public firm's journey to achieve a second exit – is this just another tech crash in the making?

Although the name King may be unknown to you, you’ve undoubtedly received incredibly irritating Candy Crush invitations on Facebook from friends, family, and people you simply haven’t seen in years.

Of course, as the creator of Candy Crush, King is to blame for the intrusion.

It’s interesting really. In a world where graphics have never been so advanced with the likes of the PS4 and Xbox One to choose from, people are still turning to a social network for their gaming fix, which demonstrates the addictiveness of the game.

King launched in 2003 and initially had a focus on online games. Fast forward to 2011 and the advent of social networking and smartphones, and King had started pushing titles on Facebook and across mobile.

By March 2014, King had reached 352m monthly unique users – at which time the company also became public.

Although the firm has developed “more than 200 fun titles” – including Farm Heroes, Pet Rescue and Bubble Witch – Candy Crush is easily the flagship game.

But the IPO was deemed a flop and the company labelled a one-trick pony, with Candy Crush powering three-quarters of revenue.

However, as of Q2 2015, King had retained 340m unique users and achieved a revenue of $490m. Although the latter had declined year-on-year, this was put down to consumers retaining their virtual currency for longer as flagship game Candy Crush matures.

But ahead of Q3 results on 4 November, King has revealed it’s been acquired by Activision Blizzard for a sum of $5.9bn.

Activision Blizzard is arguably best known for war franchise Call of Duty, while other large properties include World of Warcraft, Guitar Hero, Skylanders and Destiny.

Although the deal has been agreed by both parties, the Irish High Court is expected to approve the deal by spring 2016.

With mobile and social such a strong component of King’s performance, this will be a huge channel for console-heavy Activision Blizzard to leverage and capitalise on.

The massive union of the two businesses will create what’s being described as “one of the largest entertainment networks” in the world as it will reach more than half a billion users each month across 196 countries.

Bobby Kotick, CEO of Activision Blizzard, said: “We continue to benefit from our focus on creating the world’s best interactive entertainment. Our incredibly talented employees around the world once again delivered great content and strong financial results.

“Mobile gaming is the largest and fastest-growing opportunity for interactive entertainment and we will have one of the world’s most successful mobile game companies and its talented teams providing great content to new customers, in new geographies throughout the world.

“King has a truly fantastic management team and over 1,600 incredibly talented employees and we are excited to welcome them into the Activision Blizzard family.”

Read more on mergers and acquisitions:

Activision Blizzard is headquartered in Santa Monic, California, while King’s HQ is in Dublin, essentially making them worlds apart in terms of origins.

But the 1,600 employee base King has garnered can be found spread globally, as the firm boasts studios in Stockholm, Bucharest, Malmö, London, Barcelona, Berlin, Singapore and Seattle, with with offices in San Francisco, Malta, Seoul, Tokyo, and Shanghai.

According to Fabien Nicolas, VP of marketing communications & community at App Annie, the deal spells a more diverse audience and product opportunity for Activision Blizzard.

“This acquisition highlights the importance of mobile as a key factor of growth for publishers in today’s gaming market. Activision has taken in the past a more reserved approach to mobile, releasing only a handful of titles, like Hearthstone, and mainly using mobile apps as side experiences to their PC & console games,” he said.

“In the meantime, global competitors such as EA or Tencent have embraced this new sector. However, this acquisition clearly demonstrates a new commitment to mobile for Activision as well as the will to diversify their IP portfolio to a more global female audience. King will add a very strong & vibrant community of female players 18-50+ to this mix to build a more balanced portfolio of IPs.”

However, some remain unconvinced and believe the takeover sum could spell a tech crash.

Michael Wade Cisco chair of digital business transformation is confused as to why a company would want to buy Candy Crush for so much money.

“This is just one of a number of valuations that are increasingly unrealistically high. Today, unicorns, companies valued at $1bn or more are not hard to find. There are now 142 of them to be precise,” he said.

“This is unsustainable. Many new companies are coming on the scene with very little revenue and dubious business models. Not only are many of these companies getting huge valuations but they are also getting funded.”

“I have exactly the same feeling as I did in 1999 before the dotcom crash. However, on my frequent trips to Silicon Valley, the people who I talk to there are denying the similarities. They say the investors are smarter this time around. They say that the new unicorns have strong business ideas and solid fundamentals.

“Some of them may be strong, but a lot of them aren’t. Buckle up because in my view we will see a crash in the next fourteen months. A lot of bad businesses are getting funded these days. Eventually they will fail.”