Sega recently confirmed its plans to acquire mobile developer Rovio in a blockbuster deal valued around $776 million. While the transaction is still pending regulatory approvals, its very notion has surprised fans since the first report that Sega might be buying the Angry Birds maker surfaced online last Friday.
As unexpected as the deal might seem, Sega's interest in adding the Finnish company to its portfolio makes a lot of sense. Rovio has been shopping around for a buyer for a while, setting the stage for this consolidation, and the developer represents a unique opportunity for Sega to bolster its business across the board in a relatively affordable manner.
Sega's Rovio Acquisition Numbers Make Sense
There's no denying that $776 million is a hefty sum for the Japanese gaming giant, whose total market cap stands at just over $4.3 billion as of this writing. While Sega doesn't need Rovio per se, with a company the size of Sega, having a lot of money sitting around and doing nothing leads to nervous investors. History shows that shareholders who suspect a company ran out of growth ideas tend to take their investments elsewhere, tanking its stock price - an especially big risk for multi-billion-dollar conglomerates like Sega.
Financially speaking, Sega's acquisition price is over double Rovio's annual revenue, according to its 2022 interim reports. For context, Activision Blizzard is currently trading at 11 times its yearly turnover, with Microsoft's pending buyout offer at 12 times that revenue figure. Even with an optimistic growth outlook, it's going to take well over a decade for Microsoft's Activision Blizzard acquisition to realistically generate any returns. Revenue doesn't equal profit, but the fact remains that Rovio's price isn't overvalued relative to the rest of the industry.
Rovio Acquisition Powers Up Sega's Mobile Push
This acquisition also makes a lot of sense in light of Sega's ongoing efforts to strengthen its mobile presence. Rovio is a more consistent performer that owes its lifetime sales to only 49 games, meanwhile Sega has put out over 140 mobile titles since 2009 with hit-or-miss results. Apart from occasional success like Sonic Dash, the studio's mobile portfolio largely consists of classic re-releases and niche titles such as Football Manager.
Therefore, the Angry Birds maker will effectively boost Sega's mobile business and the variety of games on offer, not least because the Finnish company operates a fairly successful indie-publishing program that has yielded around 20 titles to-date. Though Angry Birds makes up the bulk of Rovio's revenue, the company also has a knack for putting out moderately successful experiments like the MOBA Battle Bay. Online market research tool AppMagic estimates it has generated over $20 million in revenue over its lifetime, and while this isn't huge in the grand scheme of things, such numbers add up over time.
Rovio Acquisition Has Interesting Implications for Future Sega Games and Movies
Buying Rovio also opens up many new IP opportunities. The fact that Sega has released over 20 Sonic the Hedgehog crossover games demonstrates that it has the experience to combine its flagship IP with Angry Birds, whose developer is also no stranger to cross-licensing projects. Furthermore, Sega's growing TV and movie ambitions mesh well with Rovio's foray into filmmaking; the Japanese company previously confirmed around a dozen movie adaptations of its games, so it likely views properties like The Angry Birds Movie and Angry Birds Toons as compatible with those efforts.
It's plausible that fans of established Sega franchises like Persona and Yakuza can expect some Angry Birds cameos in future installments should the deal go through, but that would only be a minor side effect of the buyout. Since Sega itself says the decision to acquire Rovio was mostly mobile-driven, it's plausible that minor projects from the Finnish company won't survive this buyout. The Angry Birds arcade machines come to mind, seeing how Sega left the arcade business after half a century in early 2022 and is presumably not keen on returning to it.
Overall, Rovio seems to be the closest thing to a perfect fit for Sega's existing portfolio that's currently open to acquisition. The duo's many synergies were undoubtedly a key factor in them agreeing to the deal, as evidenced by the fact that a higher Rovio bid from Israeli gambling giant Playtika was rejected earlier this year.
It remains to be seen whether this acquisition proves worthwhile, assuming it does go through. But from Sega's perspective, buying Rovio clearly makes a lot of sense given the Angry Birds developer could elevate its existing portfolio in a variety of ways, including a much-coveted boost to its mobile presence. The deal also alleviates investor pressure on Sega to spend money in a way that doesn't over-leverage the company. Even if the acquisition proves to be less beneficial than expected, the fact that it's funded by about half of Sega's cash reserves means this would be a mistake that the Japanese company can afford to make.
Sources: Rovio Interim Reports, AppMagic