Tencent is reportedly shifting its M&A strategy to majority deals


Tencent, one the largest tech companies in the world, is the largest by gaming revenue. It has invested in companies located outside of China for a long time. It often only grabbed a small percentage of the company’s shares and let existing owners continue to run it.

Examples include Playtonic Games and Frontier Developments, Bohemia Interactive. Offworld Industries, Triternion. Paradox Interactive. Remedy Entertainment. Krafton. Kakao. FromSoftware. Marvelous. Bloober Team. Don’t Nod.

Today, a new Reuters report Tencent’s merger-and-acquisition strategy will shift to focus on majority deals, suggesting that there will be. The reason for this policy shift is well known. The Chinese government’s increasingly strict gaming restrictions (especially for minors), has forced Chinese companies, such as NetEase and others, to look inward for growth. Tencent reported its first ever revenue decline in August 2022. This was a decrease of -3% compared to the second half of 2021. The entire first half 2022 saw a -1% drop.

The Chinese giant recently invested $300 million in Guillemot Bros. (the family-owned company that holds the largest stake in Ubisoft). Ubisoft’s Board of Directors also authorized Tencent to increase its direct stake in the company, from 4.5% to 9.99% of capital and voting rights. Tencent won’t be allowed to sell Ubisoft shares over five years and won’t be allowed to increase its stake in Ubisoft for eight years.

Truth be told, Tencent has done a number of full-fledged acquisitions before. It happened already with 1C Entertainment (now Fulqrum Games), Inflexion Games and Wake Up Interactive. Sharkmob, Turtle Rock Studios, Sharkmob and Grinding Gear Games.

Tencent purchased the majority, or all of the shares in each case. In other cases such as Yager Development and Fatshark, Sumo Groups, Riot Games, Funcom, an initial minority investor was followed by a more substantial operation in order to secure control. Tencent will not be requiring the middle-step and will instead go directly for majority deals. The consolidation wave in the gaming industry seems to be far from over.





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