[Jialun Says] Several giant game companies may go public this year.

Talking tea in a teahouse—Jialun Stories. Welcome to this episode of “Jialun Says,” where we review the week’s industry news and explore the latest developments in the sector!

In mid-2016, Caixin Online reported that the China Securities Regulatory Commission (CSRC) had halted cross-sector private placements by listed companies, specifically targeting four industries: internet finance, gaming, film and television, and VR. For example, cement companies were prohibited from acquiring companies or raising funds through private placements for investment in these four sectors.The subsequent rejection of various M&A deals has all but confirmed this rumor. Although some cross-industry M&A cases have since passed CSRC review, an increasing number of proposals to acquire gaming companies have been rejected—and in some instances, listed companies have voluntarily withdrawn their M&A applications. This clearly indicates that the review process for cross-industry M&A by listed companies has indeed become increasingly stringent. 

However, one point has been overlooked: while the CSRC has halted cross-sector M&A, it has not banned intra-industry mergers and acquisitions. Acquisitions of gaming companies by other listed gaming companies should not pose a problem. Furthermore, while reviews of M&A transactions involving private placements have become stricter, those for all-cash acquisitions are not subject to the same level of scrutiny. In fact, several such cases have recently passed the review process successfully.

After several years of development, the gaming industry has gradually begun to show a trend toward consolidation. Based on this, I venture to predict that several giant publicly traded gaming companies are likely to emerge this year. Through continuous mergers and acquisitions, they will solidify their foundations and thereby mitigate the risks associated with the uncertainty of game publishing.

Let’s take a look at a few companies that are already showing signs of this trend, and it seems their acquisition sprees show no signs of slowing down.

Tian Shen Entertainment

January 2015: Acquired iS Assistant (distribution channel) for 600 million yuan in cash 

March 2015: Acquired Avazu (overseas advertising), Miaoqu Hengsheng (R&D), and Leishang Technology (R&D) through a joint venture valued at 3.5 billion yuan  

June 2016: Acquired Oasis Games (overseas publishing) for 4.418 billion yuan

October 2016: Acquired Yihua Technology (card games—Texas Hold’em) for 986 million yuan 

December 2016: Acquired Pocket Technology (Texas Hold’em) for 1.067 billion yuan

January 2017: Acquired LeWan Network (card and board games—PiPi Mahjong) for 469 million yuan

Century Huatong

January 2014: Acquired Tianyou Software (R&D) and Qiku Network (R&D) for a combined total of 1.8 billion yuan

November 2015: Acquired DianDian Interactive (Overseas Publishing) for 13.463 billion yuan China Mobile Games – Postponed (Publishing) 

December 2015: Acquired Xiamen Quyou (browser game publishing) for 350 million yuan

Jan. 2017 Shanda Games holds a 90.92% stake; total investment exceeds 10 billion yuan

Zhangzu Technology

Feb. 2013: Merged with Dongwang Pioneer (browser games) for 810 million yuan

Oct. 2013: Acquired Wankai Technology (R&D) and Shangyou Information (standalone game R&D) for a combined total of 2.553 billion yuan

August 2015: Acquired an 80% stake in Tianma Shikong for 2.678 billion yuan

These companies are all typical publicly traded game companies that have used continuous mergers and acquisitions to establish a full-industry footprint in the broader entertainment sector. In fact, they have become almost addicted to acquisitions, engaging in a ceaseless stream of deals. This year, the trend toward consolidation in the gaming industry has become even more pronounced, with several publicly traded game companies vying for the third spot in China’s gaming market—behind Tencent and NetEase—through a series of acquisitions.We’ll see how this all plays out by the end of the year.

Well, that wraps up this episode of “Jialun Says” from the Game Teahouse. If you have different views or insider information to share, feel free to follow the Game Teahouse WeChat official account and send “Jialun Says.” Also, we have a little surprise for our loyal readers of “Jialun Says”—follow our WeChat account to claim movie tickets. Hurry and grab yours!See you next time!■