Tencent Holdings Ltd is reportedly nearing a multi-billion deal to acquire Supercell Oy, the Finnish maker of the popular Clash of Clans mobile game, and an industry observer said the deal would make the Chinese internet giant a powerhouse in the mobile game industry.
Citing people familiar with the matter, The Wall Street Journal reported on Wednesday that Tencent is in talks with SoftBank Group Corp to buy the Japanese company's majority stake in Supercell and is in discussions with several financial investors, including Hillhouse Capital Group, to join in the purchase as co-investors. The Journal said the deal could value Supercell at more than $9 billion. The Journal also reported in May that Tencent was looking at Supercell.
Tony Lam, a partner at mobile game design consultant Adrian Crook & Associates in Vancouver, British Columbia, said a Supercell acquisition by Tencent would place the Chinese firm in the top tier of mobile game providers.
"This is in line with their gaming strategy of acquiring the top players in large genres...like their acquisition of majority shares of Riot Games and League of Legends in 2011 which solidified them as a top tier player in the MOBA and eSports genre," Lam said.
Games are one of Tencent's biggest business areas. About half of the 32 billion yuan ($4.88 billion) revenue Tencent generated in the first quarter came from online games.
Six members of the Finnish games industry founded Helsinki-based Supercell in 2010 and it has launched only four titles -- Hay Day, Clash of Clans, Boom Beachand Clash Royale -- in the U.S. and Europe, according to the Journal. All the titles were among the top 20 mobile games by revenue on Apple Inc.'s iOS system as of May, according to videogame research firm Newzoo, the newspaper said. Supercell's games are free to download. It earns money by selling virtual goods that help players advance.
Lam doesn't think Tencent would be overpaying for Supercell if the purchase price is around $9 billion. "At less than 10x (times) income and less than 4x 2015 revenues, it certainly doesn't seem to be overpaying. In May of 2015, when Softbank increased their ownership in Supercell to 73 percent, that deal was valued at around $5.5 billion so while there definitely a premium being paid, it doesn't seem out of line with a fair valuation," he said.
Lam said he doubted that acquiring Supercell would raise concerns by regulatory officials because the global mobile games market is about $37 billion in size and Supercell's revenue is less than 10 percent of that. "This acquisition certainly doesn't give Tencent a dominant position in the still-fractured market," he added.
Supercell has topped the list of App Annie's Top 52 publishers for 2014 and 2015. The Helsinki-based game developer said in March that posted a profit of $930 million on revenue of $2.3 billion in 2015. It also claimed active daily users totaling 100 million around the world.
Lam said this is more evidence that the mobile game market is a big business with global appeal and has room to grow. "Despite some grumblings about the Free-2-Play model, the business of mobile games has never looked brighter," he said.
