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This was an amazing discussion on the topic of mergers and acquisitions in gaming, with Chris Petrovic, previously Head of Corp. Dev and M&A from Zynga and Kabam.

You can watch the video below.

My major takeaways from this clip.

Eric Kress 9:05

What do you think that Frank Gibeau did that turned Zynga around?

Chris Petrovic 10:09

1) First of all, it helps to have somebody in that [CEO] seat that actually understands Free-to-Play mobile.

2) It also helped to have an executive like Frank that was able to have pattern recognition of what it feels like it looks like to go from high to low and back up again, which EA had done during his time there.

[There’s a finite number of things] that can go wrong, and that needs to be fixed in a gaming company when things are not going well versus going well. And so having that pattern recognition of what works, both when things were going well, and when needed, fixing really helped.

3) [Frank] brought in, you know, a whole cadre of his former EA peers, to help him and be part of the management team to craft the turnaround.

4) [The management] identified great franchises that had been underleveraged, and Zynga Poker, and Words with Friends. [Basically] looking at the business more like an annuity than a hits-driven business, knowing that you always have to create new games, but you have that hedge with really dependable stable revenues coming off of long-standing games and franchises.

Joseph Kim 12:14

When you came in, was there a conscious kind of shift in terms of how you evaluate and the kinds of companies that you guys are going after?

Chris 12:27

The first thing I did was go through and do a historical tear down of the M&A that Zynga had done from the time it really started getting aggressive in 2009. And to your point, Joe, there wasn’t a real positive return on investment picture there.

There wasn’t any kind of framework around integration philosophy or approach.

In M&A, there’s the traditional 80/20 rule, which is 20% of your M&A ends up driving 80% of your value. And, so starting from scratch, one of the first things I focused on was building that framework, alongside the management team that would actually be responsible for a large part of the integration, but really just creating a framework where we were really clear and transparent and honest with both ourselves and the companies that we were looking to bring into the family about what how things would look kind of post.

The prior M&A teams had a reputation for being very aggressive in terms of going after targets, engaging with them, getting data, and then not following through. And I really spent the first 12 to 18 months of my time at Zynga when I was meeting with developers apologizing for the actual actions of my predecessor teams.

And [we went on] re-establishing a positive reputation, because as we all know, it is a small industry, and there’s no need to be a dick. And be successful at the same time.

Laying that groundwork, having the management team out in front of developers all over the world telling and retelling the story about what we see is the opportunity, and then actually doing what we say.

We started getting permission to do larger deals to deploy more capital. And as we showed success to our board, to our investors, to the street, to banks that wanted to provide us capital, it became easier to do those things.

And so, the discussion around buying Peak was no more or less intense than the discussion around buying Puzzle Social, for example, because the moment in time, where we were, from an experience perspective was completely different.

Having the framework, having the discipline, having the management expertise, and having the clarity of vision, all really helped without feeling like you were missing out.

Eric

Your approach seemed to be the city-state model thing where you just basically let them run their own thing?

Chris

Exceptions I will say are, for example, when we acquired the board and card studio from Peak, which was a studio and asset acquisition out of a company. So they became a Zynga branded studio on day one. But that fit the mold of that particular acquisition, deal, or framework, I should say.

With Gram Games, Small Giant, and Peak, they’d already demonstrated success. And our mantra to them was, we want to create an environment where 1 + 1 = 3, for you and for us and our shareholders, which means that you do what you do. Take a look at all of our menu of options that we have in terms of capabilities, technologies, employees, plumbing. Just call it company plumbing. And you as the new member of the family can opt into any, all, or none of the things on this menu, and we’re not going to force you, we’re not going to require we’re not going to rebrand you, we’re not going to take away your identity or culture.

Thinking about Small Giant, there were 35 people when we acquired them and imagine at a company if they stayed independent, how much they would have had to reinvest in the plumbing versus reinvesting in the game and in UA, which are the two you know, and obviously people related to both which are the important parts of the business.

Eric 34:18

I wanted to get your thoughts on these consolidators. Stillfront is getting some decent assets but Embracer just seems to be picking whatever they could find?

Chris

You have to start somewhere. And then hopefully, there’s enough success on those foundations. We are a very long way from Puzzle Social, which was a sub $50 million deal, going to 2 billion with Peak, but we needed to get there.

Stillfront is executing the [Zynga] playbook just currently at a smaller scale. And their bet is that they’re going to continue to be able to do that, as success stacks on top of success.

Eric

With the impact of COVID, and things going back to normal relative normal for the gaming space, these guys are going to just get destroyed, right?

Chris

I think we’re in for a reckoning. It’s going to be rough for the industry, especially the public markets. If history is any guide, once things get back to normal, people tend to get back to normal activities, whereas now they have an overabundance of time to spend on recreation like gaming. So 2021 is going to be an interesting year from the evaluation standpoint.

Joseph 38:58

Regarding M&A, do you have any names in terms of anyone left remaining out there?

Chris 39:55

The Coin Master guys out in Israel, are doing some really amazing work. The Lily’s Garden folks are doing some amazing work out of Copenhagen. To me, it’s always exciting to see new/emerging companies that are able to break through what is usually a pretty, you know, pretty exclusive club in terms of top-grossing and sustain.

Joseph 41:47

What specifically are you looking for in the companies when you’re looking for your targets?

Chris 41:53

It all starts with going back to the framework discussion about having alignment internally about what it is that you want to what would you like to have, but more importantly, what it is that you don’t want so that you can cut out the noise of focusing on things that have a very low likelihood of executing.

Couple of things you need to have:

1) Having a disciplined view about what it is that you want and don’t want.

2) Having people inside the organisation that just love to play games. We empowered everybody throughout the organisation, from game teams to central, to come up with observations about games that they’re having fun playing.

3) Being out there and talking to folks, to bankers and advisors, talking to leaders and studio heads at conferences and other events, and just being fans of their games and letting them know that.

Joseph 45:42

Thinking based upon your experience in terms of like what not to do or lessons learned? Could you talk about some of that?

Chris

Please be mindful of preparing your company. And administering it and running it in a professional manner from day one.

Prep yourself, view yourself as a company, that’s going to be a billion-dollar company. And we’ll need to have that infrastructure regardless of what the exit ends up being, if at all, but do me a favor and just build the solid foundation of your house early on, so that you can be prepared, and have to be less burdened.

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