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Is Tencent About To Change Its M&A Strategy?

One of China’s tech giants (the other would be NetEase), the largest in the market in terms of video game revenue, may continue its expansion into the West differently.

 

So far, Tencent has mainly bought small stakes in studios and companies and kept their respective original management. Many examples could be cited, such as Playtonic Games, Frontier Developments, Bohemia Interactive, Payload Studios, Offworld Industries, Triternion, Paradox Interactive, Remedy Entertainment, Krafton, Kakao, FromSoftware, Marvelous, Bloober Team, or Don’t Nod…

However, Reuters reports that Tencent’s M&A (merger and acquisition) strategy may change to focus on majority ownership from now on, as the Chinese communist state party is quite strict “at home” on video games (especially for minors, the allowed playing time is minimal), so they have to expand abroad. Compared to the second quarter of 2021 (April-June), this year, Tencent has recorded a decline for the first time in its history (-3%), and the balance for the first half of 2022 is also negative (-1%).

Tencent has just closed a $300 million investment in Guillemot Bros. This family-owned company has the most significant stake in Ubisoft, and the board of the French publisher has also given the Chinese company permission to increase its direct stake in Ubisoft from 4.5% to 9.99% (and thus strengthen its voting rights). In return, Tencent cannot sell its shares in Ubisoft for five years and cannot increase it for eight years.

This change of strategy is not surprising. Previously, we have seen majority or outright acquisitive expansion by obtaining 1C Entertainment (now called Fulqrum Games), Inflexion Games, Wake Up Interactive, Turtle Rock Studios, Sharkmob, Grinding Gear Games, Supercell, Leyou, 10 Chambers Collective, Klei Entertainment, and Tequila Works. After smaller investments, there have been more significant acquisitions of power in Yager Development, Fatshark, Sumo Group, Riot Games and Funcom.

In short, consolidation in the games industry will continue (and Sony and Microsoft will expand).

Source: WCCFTech

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