eResearch| Chinese tech giant Tencent Holdings Ltd. (HKG: 0700) recently announced that it would acquire the Sumo Group (AIM: SUMO), a British video game firm, for a £919 million (US$1.27 billion). Following the news of the prospective acquisition, shares of Sumo jumped over 40%.
Founded in 1998, Tencent is a world-leading Chinese multinational technology conglomerate. Headquartered in Shenzhen, China, the Company is the second-largest video game group in the world in terms of sales after Sony (TSE:6758).
Tencent is the second-biggest shareholder in Sumo at 8.75%. Sumo has more than 1,200 employees scattered across 14 studios in 5 countries.
Sumo is a game developing company that writes games for other publishers and its studios have worked on important gaming projects, from Hitman to Forza to Disney Infinity.
Sumo has various popular games in its portfolio including Sackboy: A Big Adventure, a 3D platforming adventure game published by Sony, as well as many other racing games based on Sega’s Sonic the Hedgehog franchise.
Tencent plans on integrating Sumo’s racing and snooker games into its higher-profile games, including the mobile version of Call of Duty. The acquisition will add a new title to Tencent’s chart-top video game portfolio.
Based in Sheffield, Sumo was listed in 2017 at 100 pence and a market cap of £145 million. Tencent is offering 513 pence per share, a 43% premium, and values Sumo at about 919 million pounds ($1.26 billion).
The acquisition is going to be the second major deal involving a UK video game company. Recently, US-based video game maker, Electronic Arts (NASDAQ:EA) announced the acquisition of Britain-based, Codemasters for $1.2 billion.
Sumo on Tencent-Sumo Acquisition
Ian Livingstone, the chairman of the Sumo Group said in a statement, “The board of Sumo firmly believes the business will benefit from Tencent’s broad video gaming ecosystem, proven industry expertise, and its strategic resources.”
Market Importance of Tencent-Sumo Acquisition
According to Drake Star Partners, a global investment banking firm, the first half of 2021 saw over $60 billion worth of investments, acquisitions, and public offerings in the gaming industry. The Tencent–Sumo acquisition adds to the already long list of foreign firms buying video game companies in the UK. The deal is expected to have an impact in the US as well, as Sumo Digital owns Oregon-based Pipeworks Studios, the maker of Rival Peak, and Timbre Games studio in Vancouver.
Last year, Tencent was targeted by then-President Donald Trump, who wanted to ban US businesses and customers from dealing with any of Tencent’s services, such as the messaging service, WeChat and video games. The Tencent–Sumo acquisition will increase the global presence of the Chinese tech giant.
Speaking on the Tencent–Sumo acquisition, Daniel Ahmad, a market analyst at Niko Partners stated, “Tencent is acquiring Sumo Digital for its breadth of experiencing developing and operating AAA games and live service games, the majority of which are developed for clients, such as Sony, Microsoft, Sega, and others”
Recent Acquisitions by Tencent
Tencent has been looking to increase the pace of its investments and acquisitions to strengthen its position in the market and excel in new growth areas for the company. Over the years, the company has acquired stakes in several firms in the gaming sector, including Riot Games, the developer of League of Legends (100% ownership in the company); Epic Games, the firm responsible for the widely popular game, Fortnite (40% stake).
Tencent also has stakes in Bohemia Interactive, a Czech company; Activision Blizzard, a US-based video game holding company; Dontnod Entertainment, a French Indie game developer; Ubisoft Entertainment SA (ENXTPA: UBI), a French video game company, Paradox Interactive (OM:PDX), a Swedish strategy game publisher; and Supercell, a Finnish mobile games maker.