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EA is now "a great acquisition target" says analyst

EA is now "a great acquisition target" says analyst

Fri 27 Apr 2012 4:36am GMT / 12:36am EDT / 9:36pm PDT
BusinessFinancial

Asif Khan of Panoptic Management Consultants believes Disney would be "a great fit for EA"

EA may be on the hunt to put more game companies under its umbrella, but ironically EA itself has been rumored to be a potential takeover target for Nexon. And while that rumor certainly seems flimsy, it doesn't negate the fact that "the company's stock is trading at depressed valuations and EA could be a great acquisition target for larger game and technology companies," Asif Khan, CEO of Panoptic Management Consultants told GamesIndustry International.

"With a market capitalization around $5 billion, it is clear that EA could be acquired in the near future. The technology industry is flush with cash, making an acquisition of EA more likely than in recent history," Khan noted.

So who would be the most likely to acquire a mega publisher like Electronic Arts?

"The usual suspects would be Microsoft, Sony, Activision Blizzard, Nintendo and maybe even Apple as a long shot. Seeing as Apple is holding onto its cash like a little kid with a blankey, I don't think they are a likely bidder," Khan continued. "Activision Blizzard would have to do a stock and cash deal for EA, so let's eliminate them as well. That leaves the big 3. Sony is in no position to make a large acquisition and Nintendo would most likely have a problem integrating a third party developer into their existing proprietary ecosystem. Lastly, Microsoft would bring on much regulatory scrutiny if they acquired EA. There is no doubt that an EA acquisition would make MGS a development juggernaut, but the anti-trust implications are high for any console maker that wants to buy EA. So lets eliminate Mr. Softy as well."

Ultimately, if EA is to be purchased, it's more likely to come from a company that hasn't traditionally been known for its games - a massive entertainment company like Disney, for example.

"Let's think outside the normal realm of gaming. I think Disney would be a great fit for EA. Putting EA Sports and ESPN under the same roof would lead to a number of great synergies. The combination of Disney IP with EA developers would create a huge content powerhouse and give Disney even more control over the quality of their games," Khan remarked.

A purchase of EA by Disney could also dramatically shake up the social games space.

"Combining Playdom and Playfish would definitely give Disney an upper hand against the likes of Zynga," said Khan. "With a market capitalization of $77 billion, Disney could easy swing a stock for stock deal for EA. EA is trading for 14 times forward earnings, 1.3 times sales, and at a 1 Price Earnings to Growth (PEG) rate. This is a relative bargain when compared to Zynga. Any company lucky enough to acquire EA would most likely benefit."

"It remains to be seen if this Nexon deal is for real, but it is clear that at current valuations EA is a takeover target."

What do you think GamesIndustry readers? Is an EA buyout likely in the next year or two?

9 Comments

Christopher Bowen Editor in Chief, Gaming Bus

459 738 1.6
Just another asshole analyst who likes seeing his name in print. This (his comments, not the article) might be the dumbest thing I've read.

Posted:2 years ago

#1

Elle Chen producer, Red Hot CG

2 0 0.0
Interesting, though it's hard to say.

Posted:2 years ago

#2

James Brightman Editor in Chief, GamesIndustry.biz

259 457 1.8
@Christopher, I know Asif and he's a pretty smart and savvy guy, more than "just another asshole analyst" but you're free to think whatever you like.

Posted:2 years ago

#3
Culture. I cannot forsee any suitor that has the right cultural fit that does not destroy the ongoing workings of all the studios (just because some group of people waved some cash)

Posted:2 years ago

#4

Morville O'Driscoll Blogger & Critic

1,611 1,473 0.9
@ Chee

I don't know if that matters greatly. The two take-overs of studios that I immediately go to with EA are Bullfrog and BioWare, both of whom were somewhat screwed over by the process. Bullfrog and the waste of IP. BioWare and forcing a yearly time-table on RPGs.

Odd reasons though. Apple isn't into games. It's not that they don't want to spend money, I'd say, but more that they just wouldn't care about EA. And "Nintendo would most likely have a problem integrating a third party developer into their existing proprietary ecosystem". Well, that's very debatable. I don't see why that would be an issue when you look at how they worked with Rare. *shrugs*

Posted:2 years ago

#5

Patrick Frost QA Project Monitor

405 203 0.5
I don't know Asif personally but his argument loses credibility when he takes 2 paragraphs to suggest companies that might purchase EA and then disprove all of them. It makes it seem as though he is trying to show off what he knows or just fill out his interview rather than bring information to the table.

Also he suggests Disney, a company that in its recent past has downsized its gaming division, would be ready to make a purchase?

Only 1 point in the article holds any water and that's the fact that EA's stock value is a bit low. Ignoring all other factors, yes that could make them an acquisition target. Ignoring all other factors.

Posted:2 years ago

#6

Bruce Everiss Marketing Consultant

1,692 594 0.4
EA are fantastic at owning market share. However they have been pretty abysmal for a long time at converting this into profits. This is down to culture and to management. Change these and the company could be vastly more profitable. The shareholders, who own the company, know this, which means they could get better value by selling their shares, at a premium, to someone who can run the business more profitably.
The only reasons this has not happened before is because of the perceived immaturity of the game industry and because of the sheer size of EA (c8,000 employees,$3.5 billion revenue).

Just now the industry is transitioning away from EAs traditional business model of distributing using plastic and cardboard. This is strategically disruptive. They have made some acquisitions in the digital space but have yet to grasp the nettle of the much needed wholesale changes in their organisation. This is allowing new entrants to the market, such as Zynga, to massively outperform EA. And everyone can see this.

Posted:2 years ago

#7

Myles Shepard blogger/reviewer

3 0 0.0
Hahaha Imagine the next Battlefield if Disney owned EA.....

Posted:2 years ago

#8

Jonathan Tan ,

9 1 0.1
Colonel Snow White & the 7 Special Forces Dwarves..?

Posted:2 years ago

#9

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