Thought Leadership

Easter Eggs: Overlooked Issues in Video Game M&A

Client Updates

It comes as no surprise that video game use increased by close to 50% during the COVID-19 pandemic.1 With an estimated value of $155 billion in 2020, predicted to grow to more than $200 billion by 2023, buyers around the world are looking to scoop up gaming companies.

Microsoft’s acquisition -- for $7.5 billion -- of ZeniMax Media, the parent company of Bethesda Softworks, in March, following clearance of the merger by the EU Commission,2 shows the kind of eye-popping valuations video game companies attract.

Given the amounts at stake, it is important that buyers, in addition to due diligence enquiries of the more conventional kind (e.g., intellectual property rights), focus on all the relevant issues, some of which may be overlooked.


Antitrust impacts video game M&A in two respects: its impact on the acquisition and its impact on the way in which the target company does business.

As part of the planning of the initial stages of the transaction, buyers will need to make themselves aware of whether the transaction could be subject to merger control and, if so, in which jurisdictions. Early planning will enable an informed buyer to anticipate any issues with obtaining necessary approvals, and factor-in the impact of merger filings on timing, whilst the relevant authorities assess whether the deal will lead to a significant reduction in competition and, if so, whether and on what basis it will be allowed to proceed. These issues may be particularly relevant in an auction scenario, where the relative attraction of the buyer's offer may be adversely impacted by the need for a delayed, conditional closing.

An acquisition will require notification to the competition authorities where the relevant thresholds (usually based on local revenues and/or market share) are met, regardless of whether there is any overlap between the buyer and the target. For example, Activision Blizzard’s acquisition of King Digital Entertainment3 (makers of Candy Crush) and the earlier acquisition by Vivendi of Activision,4 required notification to the European Commission.

As regards the operation of the target's business, agreements in the gaming industry have drawn the attention of antitrust authorities as potentially anti-competitive. In January, the European Commission’s investigation into five PC video game publishers and the owner of the largest PC video game distribution platform, Steam, resulted in a fine of €7.8 million ($9.5 million). The companies entered into bilateral agreements effective within the EU, to geo-block several PC video games from outside a specific Member State, in violation of EU antitrust rules.5

Recent examples like this show the importance of investigating the channels through which the target video game company sells its products to identify whether there are any factors that could limit revenues or limit user accessibility and if so, evaluating antitrust risk which could include heavy fines, follow-on damages actions and the agreements in question, and not just the anti-competitive provisions, being held void. The buyer should also consider whether successfully challenged (whether through competition litigation and/or investigations) anti-competitive behaviour by other players in the target's market could create additional value and market opportunities post-closing.

Money Laundering

The increase in revenues generated by video game companies from in-game purchases has led to a surge of criminal activity within the online video games world, especially in black market transactions and money laundering.

Criminals are using microtransactions and in-game purchases to cycle illegal money in crowded avenues where it is difficult to be detected. Last year, Valve Corp, the company that owns the popular online gaming platform Steam, announced that “nearly all” microtransactions on its popular shooter game Counter Strike – Global Offensive were funded by illegal money.6

For this reason, buyers should not assume the large in-game (as opposed to game purchase) revenues of a video game company (Fortnite generated over $2.4 billion from in-game transactions in 2018) are guaranteed to continue. Any increase in criminal activity will most definitely lead to increased regulations which could have a material adverse impact on these revenues.

Illegal Gambling

Loot boxes -- in-game purchasable items that give players personalized and powered items -- are becoming increasingly popular for character progression and as a means of increasing in-game revenue. However, in addition to potential money laundering abuses, loot boxes can be abused by gamers with vulnerabilities to gambling addictions – leading to them being considered as illegal gambling in a growing number of jurisdictions.

Loot boxes are predicted to generate $20 billion in revenue by 2025, up from an about $15 billion in 2020. If loot boxes are deemed by regulators in one or more of the relevant jurisdictions in which the company operates to be a gambling activity, that could severely impact the target company’s business – it may be banned from certain jurisdictions and heavily regulated in others.

Many jurisdictions around the world heavily regulate or outright prohibit loot boxes, or are working towards that end:

  • ANCED, the Brazilian Association for Child Safety, filed seven class action lawsuits on April 1 against game developers for use of loot boxes, as a harmful form of illegal gambling.7
  • Belgium8 and the Netherlands9 already consider that certain loot boxes in games could be considered criminal gambling.
  • The UK Gaming Act review is looking at this issue now, with the government’s proposals set to be published later this year – the call for evidence concluded on March 3110. This follows the UK’s House of Lords recommendation in Summer 2020 to reclassify loot boxes in video games as gambling. Well-reported research out of the UK from early April showed a strong link between loot boxes and problem gambling11.

Keep in Mind

Poised for explosive growth, the video game industry seems ripe for strategic investment. Before joining the game, investors need to look at potential hidden traps before they power up.


[2] Case M.10001 - MICROSOFT   / ZENIMAX.  The deal also obtained clearance by the Brazilian Competition Authority (CADE).


[4] Case M.5008 - VIVENDI / ACTIVISION

[5] Cases AT.40413; 40414; 40420; 40422; 40424; European Commission Press Release IP/21/170 of 20 January 2021







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