China’s Tencent has agreed to buy the British video games developer Sumo Group at a valuation of more than £900m, further expanding the tech company’s presence in the global video games market.
Sumo’s board has agreed to Tencent’s offer of 513p a share, valuing the London-listed company at £919m, it announced on Monday.
The price represented a premium of about 43% on Sheffield-based Sumo’s closing share price of 358p on Friday, before the deal was announced, and was also much higher than its all-time high of 407p. Shares soared by 40% on Monday, to 499p.
Tencent said it had received pledges to back the takeover from the holders of 27% of Sumo’s shares, plus its own holding of almost 9%.
Tencent is one of the biggest companies in the world, thanks to its control of the Weixin/WeChat social media app, which is used across China for chat and mobile payments, as well as gaming.
It also controls large video game and esports interests, in a market that is expected to grow rapidly after a hiatus in 2021 caused by the coronavirus pandemic. That includes ownership of Riot Games, the developer of the wildly popular League of Legends franchise, plus stakes in other games developers including Epic Games, the maker of the Fortnite series, and Finland’s Supercell, the maker of the mobile game Clash of Clans.
Tencent has already completed another 10 investments in video game companies during 2021 so far, according to analysts led by Katie Cousins at Shore Capital. In a note they said the UK government was unlikely to intervene in the takeover, despite previous concerns with regard to Chinese acquisitions of British businesses such as the semiconductor manufacturer Newport Wafer Fab on national security grounds.
The global market for video games is expected to falter during 2021 after bumper growth in 2020, when locked-down consumers turned to games. Demand was boosted further last year by the release of Sony’s PlayStation 5 and Microsoft’s Xbox Series X/S. Forecasts by Newzoo, a games data company, in May suggested that global games revenues will dip by 1.1% in 2021 to $176bn (£128bn). However, they expect the market to resume its otherwise unbroken annual growth to reach $200bn in sales by 2023.
Sumo was set up in 2003 as a developer for hire, working on parts of other companies’ games. Eventually it took control of developing entire games, with past titles including Sonic the Hedgehog games for Sega, LittleBigPlanet for Sony, and Hitman in collaboration with IO Interactive.
After two private equity-backed buyouts in 2014 and 2016, Sumo listed on the London Stock Exchange’s Alternative Investment Market in 2017. It employs more than 1,200 people across 14 locations in the UK, Poland, Canada, India and the US. Tencent first bought shares in Sumo in November 2019.
Carl Cavers, Sumo’s chief executive and co-founder, said: “The opportunity to work with Tencent is one we just couldn’t miss. It would bring another dimension to Sumo, presenting opportunities for us to truly stamp our mark on this amazing industry, in ways which have previously been out of reach.”
Cavers and two other co-founders, Paul Porter and Darren Mills, will continue to work in the business if the deal goes through.
The Sumo deal would be the second acquisition worth more than £900m of a British games developer after the US company Electronic Arts bought Codemasters for £945m in February.