Recently in Korea, there was a news report that major shareholders in SundayToz sold their shares to SMILEGATE. SundayToz is a mobile game developing company established in 2009. The company was positioned as the number one social game developing company in Korea since its Anipang series became a hit, recording 28 million downloads. Their newly launched game called “Anipang 2” obtains 4 million DAU (Daily Active User) and most of their games are on the higher rank in application marketplaces as of March 2014. SMILEGATE is one of leading game developing and distribution companies in Korea, which successfully operates its big hit FPS (First Person Shooting) game, Cross Fire, in more than 80 countries including China and Vietnam.
Regarding the deal, SMILEGATE bought the shares of three founders of SundayToz at about USD 16.8 on March24th (US$ 1 = KRW1,076, April 8th). The share was 20.7% and the deal size was approximately equivalent to USD 111 million, which was the largest acquisition deal in Korean mobile game industry. These founders received cash from this deal in only three and a half months after its IPS in November.
Actually, it is not a new story that a bigger company acquired an attractive and small company like SundayToz. The reason why many people are interested in this deal is its timing of the deal between two parties and prospects about whether they will make synergy together based on this strategic alliance. By appearance, they will cross sell their hit games by utilizing their game platforms. Also, SundayToz seems to use the distribution channel that SMILEGATE has already established for its global game service. However, there are skeptical perspectives toward the deal in a way that it is difficult to utilize their assets each other. Even though SMILEGATE made a contract with Tencent for CrossFire, it is not sure that Tencent with similar games of Anipang will distribute games of SundayToz.
Despite all prospects around the deal, there are several points that we have to focus on.
Firstly, recent activities around the mobile game industry show that Korea is a very active and initiative test market before jumping up to major markets such as China. Based on high smartphone distribution and mobile game acceptance rate, Korean mobile games record rapid growth and are expanding into the social game category by leveraging popular instant messaging services such as Line and KakaoTalk. These messaging services are expanding their service areas to social network service as they actively cooperate with diverse contents including games. Anipang of SundayToz plays an important role as a rule changer in this industry even though they are criticized for making a copycat model of Candy Crush Saga.
Secondly, mobile game is no longer a side category of PC and console games. Mobile games grow fast and its market may catch up with PC games. According to Gartner’s market forecast (Oct, 2013), the mobile game market will grow at CAGR of 33% to 2015. Regarding financial forecast, the Korean game market is on the same trend with a global market. Specifically, SundayToz can become a leading company in a new area as NCSOFT and NEXON did in PC games in that Korean mobile market has a strong upside potential and SundayToz has garnered more than 28 million users.
Source: Gartner (Oct, 2013)
Lastly, social games are evolving now. When we can see from the case of Flappy Bird, there are many kinds of social games. Game development companies do not force gamers to ask something to their friends to build a new architecture and to get the more powerful items. Weak-tie & high-participation games make users get tired too easily while strong-tie & low participation games get them to become more concentrated for longer duration.
In this context, weak-tie means a weak relationship with other gamers and high participation is to drive users to get obsessed with collaboration activities such as asking for some help to other users. SundayToz contributed in expanding the strategy of social games and SMILEGATE seems want to have this know-how in strong-tie & low participation games.