There are two great strategic effects coming together here with some serendipdy.
The first is that Ubisoft are very well managed as a company. They have a fantastic global studio structure and were the first into China and one of the first into Canada for development. They make quality games and have moved strongly to original IP, which is the way to go. This makes them very profitable. And this profitability gives them competitive advantage. They can borrow money more easily and cheaply. And their stock has a higher price if they want to buy something using equity or if they want to merge.
The second is that the video game publishing industry has enormous competetiveÂ advantages of scale, especially for globally sold boxed product. This is why it is inevitable that our industry consolidates into a small number of big players. Why Activision and Vivendi have merged and why Electronics Arts want to buy Take Two. And with big media companies like Warners and News CorporationÂ moving into gaming there is a time imperative. Companies that don’t consolidate to become massive will themselves fall victim to the consolidator.
So with these two strategic forces it is hardly surprising that Ubisoft are looking at Merger and Acquisition (M&A) activity. In fact it would be very remiss if they weren’t. But typical of Ubisoft they are going about it with great care: â€œOur idea is to increase the speed of our growth organically, whilst looking at other opportunities for external growth within a certain limit. Itâ€™s sensible. We feel that mergers and integration is something that can be very damaging to a global company.â€
So who might be potential suitors? Infogramme, obviously, would be cheap andÂ it hasÂ the advantage of being French, like Ubisoft.Â It also has a whole pile of heritage originalÂ IP fromÂ its various acquisitions and from Atari. Sci/EIDOS would be a good buyÂ for the same reasons of cheapness and IP catalogue. In fact either of these has the potential to unlock the great heritage of original British game IP that is currently locked away, ignored and unused. Another tempting target forÂ its originalÂ IP would be Codemasters, whose games, if produced in low cost Ubisoft studios andÂ marketed by the global Ubisoft publishing organisation, would be vastly more profitable. Likewise Sega must be very temptingÂ asÂ its stock value is held down by under-performance and in no way reflectsÂ its storehouse of brands. And there are Take TwoÂ and THQ that would both probably be better off owned and managed by Ubisoft.Â Â Of courseÂ Ubisoft could buy multiple targets, the problem then is digesting them and getting the best value for their investment.
Another fantastic advantage of M&A activity using equity is that it would dilute Electronic Art’s stake in the company.