Zynga’s acquisition of Finland’s Small Giant Games final yr represented a triumph for the surging Finnish cellular gaming studio in addition to one other signal of its new proprietor’s turnaround.
But given that almost all acquisitions fail, it was additionally an enormous danger for either side. How can one firm purchase one other with out quashing the tradition and creativity that made it successful?
I mentioned this topic just lately with Matt Bromberg, COO of Zynga, and Timo Soininen, co-founder and CEO of Small Giant Games, on stage at the Slush expertise convention in Helsinki, Finland.
Small Giant Games struck gold with its Empires & Puzzles recreation. After launching the recreation in 2017, the firm raised raised $41 million in February 2018. One yr in the past, Zynga introduced it was buying 80% of Small Giant Games for $560 million, with the relaxation to be bought in the coming years primarily based on efficiency.
But as a lot as the deal validated Small Giant Games, it additionally marked the final affirmation of Zynga’s comeback. After going public in 2011, Zynga fizzled out and appeared to be in a lethal tailspin. But Frank Gibeau, a former Electronic Arts government, righted the ship after turning into CEO in 2016, getting it again to breakeven and rising once more.
That progress included acquisitions. Bromberg mentioned that purchasing different firms was solely attainable after Zynga got it’s personal home so as.
“When I joined the company, a little more than three years ago, the company was essentially worthless in the stock market. Which is to say the stock was worth about as much as the cash we had,” Bromberg mentioned. “Buying companies was not the first thing we thought about it. In general, it’s a terrible idea to try to fix your own problems by buying another company. No great company would want to be a part of your company if you’ve got a lot of problems yourself.”
As Empires & Puzzles continued to soar, Small Giant Games started getting calls from firms feeling them out about potential acquisitions. “We started getting inbound interest from various players and it was tempting because we had gone through hell and come back,” Soininen mentioned. “We almost ran out of money at one point.”
The Finnish startup raised its VC spherical in 2018 partially to take a few of the strain to unload the founders. That allowed some insiders to promote some inventory and weigh their choices. From the Zynga aspect, Bromberg mentioned the courtship lasted 18 months, and started as broader, introductory conversations to get to know individuals on either side.
He was additionally conscious that there was massive curiosity in rivals who have been making their very own overtures.
“We actually had someone sit in the coffee shop outside across the street from their offices and watch the door to see who was coming out, and figure out who else was coming in,” Bromberg mentioned.
In pursuing such a deal, Bromberg mentioned gamers usually stand up in profitable and closing a transaction, quite than pondering long run about the implications. And that’s an enormous purpose most acquisitions ultimately get labeled as failures.
“You want to win the right way and you want to win for the right reasons,” Bromberg mentioned. “And that’s the mistake that a lot of companies make when they get into the game of the transaction and imagine that the transaction is the point of the whole thing. In fact, the point is the next three years, five years. It’s not getting to the finish line of the transaction.”
That impulse led finally to the structuring of the deal, with Zynga shopping for 80% and then the relaxation if Small Giant Games met sure benchmarks over the subsequent three years. Both sides felt the deal mirrored their perception in the different.
“Most companies don’t think really hard about authentically wanting other people to be successful, and how they can do that,” Bromberg mentioned. “And it turns out that for us, that’s a real differentiator in the market. It sounds stupid. It sounds like not something that should be a differentiator. But actually caring about other people and doing what you say and being reliable and being transparent and just trying to be a decent person turns out to be a big market differentiator.”
Added Soininen about the deal construction: “That was really important for us because we were just getting started and we knew that a lot of the value will be coming through over the next 2, 3, 4, or five years. That really keeps us going. We are 100% entrepreneurs and that’s a very clear mechanic for us.”
By accepting a suggestion from a smaller participant like Zynga, versus say a goliath, Soininen additionally felt he might make a much bigger influence on the new dad or mum firm quite than simply being an insignificant rounding error on somebody’s steadiness sheet.
“It wasn’t just us selflessly trying to optimize our own thing, but to optimize for the greater good,” He mentioned. “Which actually turned out to be a great sort of value kicker for us.”
You can watch the full interview right here:
Overall, the previous yr since the acquisition has actually been one other good one for Zynga. It’s inventory has virtually doubled. And it’s third quarter income of $345 million was up from $248 million for the identical interval a yr in the past.