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Electronic Arts announced it is buying casual and mobile game developer PopCap Games for $750 million as it looks to speed up its evolution toward being a digital purveyor of games. The mega deal, which could be worth up to $1.3 billion with earn outs, exceeds previous acquisitions and shows that EA’s is willing to evolve quickly to get away from its traditional business of selling packaged goods.
EA will pay $650 million in cash and $100 million in stock for PopCap, which makes celebrated titles like Bejeweled, Plants vs. Zombies and Zuma and is considered one of the more quality producers of casual and mobile games. If PopCap hits certain earnings milestones by December 2013, it could earn an additional $550 million. EA is also providing $50 million in employee retention funds over the next four years.
EA said the deal, which is expected to close by August this year, helps EA drive toward its goal of building a $1 billion digital business. “EA and PopCap are a compelling combination,” said EA CEO John Riccitiello in a statement. “PopCap’s great studio talent and powerful IP add to EA’s momentum.”
For PopCap, the deal ends talk of an initial public offering and puts it into the hands of one of the largest game publishers. PopCap CEO Dave Roberts said EA is a good fit because of its increasing emphasis on digital. And EA’s size and reach can help PopCap scale up as it seeks a wider audience.
EA said the deal will will not have an effect on its fiscal year 2012 results and will be at least $0.10 accretive to EA’s fiscal year 2013 non-GAAP EPS. Electronic Arts has built up a solid digital business and has made purchases like Playfish for $400 million to get onto social platforms and just reportedly bought social gaming company Ohai. It also has a popular casual game platform in Pogo and it’s got a strong mobile business, especially on iOS.
But the company feels like it needs to speed up its digital ambitions and have more consistent hits and that’s something PopCap has managed to deliver on, whether its online, on social platforms like Facebook or on mobile devices. PopCap made more than $100 million in revenue last year and its games have been downloaded more than 150 million times. The pressure will be on for PopCap to generate new hits in a timely manner so it can add to EA’s bottom line.
The deal also helps EA as it competes more with Zynga, which is preparing for an IPO. Zynga has been a powerhouse on Facebook and is now trying to extend its success to mobile, which is exploding as a gaming opportunity. By grabbing a quality developer in PopCap, which is the third biggest developer on Facebook, EA can compete both on social and mobile platforms with Zynga.
This shows that the traditional gaming world is quickly evolving and give credit to EA for getting out ahead of this curve. Riccitiello has been preaching this transition for years and is now putting the pieces in place to take advantage of the evolution of gaming, which is moving away from big packaged titles into more bite-sized mobile and social games. The console business is still big money but the gaming world is increasingly opening to a wider audience through these new platforms and that’s where EA needs to be. It just took a bigger step toward that by grabbing PopCap.
Here’s a video we did last year with PopCap Co-founder John Vechey and CEO David Roberts:
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