More Rumors on EA-Playfish Deal: Due Diligence, Acquisition Numbers

PlayfishGaming giant Electronic Arts has been looking closely at acquiring a leading social gaming company, Playfish, we and others have heard from multiple sources in the last couple weeks. However, we have since heard some new details about the valuation, and where the companies are at in the sale process.

Whether the deal goes through or not is significant for the still-young social gaming industry (if “industry” is even the right term at this point). A sale price would help put a valuation on many of Playfish’s rivals, and bring additional credibility to social gaming’s role within the larger gaming world.

EA has been doing due diligence on Playfish, we have heard from multiple sources, meaning it has been going through the company’s financial reports and other information to determine that it indeed does want to make the purchase. We do not know if the deal has fully closed yet. Our understanding is that Playfish has been in a “no shop” period, meaning it won’t talk other potential acquirers as EA completes its review. However, some sources have previously said that the deal may have already closed. We have also heard that Playfish’s banker is J.P. Morgan.

Neither company is speaking publicly about the deal.

Following up on our original story last week, Business Insider published a rumor saying that EA may buy Playfish for $250 million. We had heard the same number, but that it is “way too low,” multiple sources have since told us. One reliable industry insider we spoke with believes the amount is “north of $400 million.” But we have also heard that the number was “less than $200 million.” Hmm. Perhaps the “north of $400 million” number includes some sort of earn-out plan? For sake of comparison, kids virtual world Club Penguin sold to Disney in 2007 for $350 million, with the possibility of earning another $350 million based on performance over the next years.

[Update: Over in London, TechCrunch Europe hears similar things: "Our sources say that Playfish is holding out for another offer, somewhere between $350m at the low end and $500m at the top end, either from EA or another suitor." It also hears that EA may be looking at buying casual gaming site King.com instead of Playfish.]

In any case, we estimate that Playfish could be currently doing roughly a $75 million run rate at the moment, through games like Pet Society, Restaurant City, and a range of others. The company now has around 12.5 million daily active users across all its apps on Facebook, its core platform, so we’re assuming about $0.50 average revenue per user (ARPU) per month in this calculation. Revenue comes primarily through virtual goods in its games. We project that the total US virtual goods market this year will be just over $1 billion, based on our Inside Virtual Goods report.

If the higher price is accurate, it should make many social gaming companies happy. After last week’s reports, we heard widespread concern about the $250 million number among social gaming companies, as it was less than what many believe Playfish to be worth.

EA’s position

One reason neither company will comment could be, of course, that the deal is not yet closed.

Another reason could be that EA is going to be announcing its quarterly earnings next Monday, October 26. Until then, EA is in its quarterly blackout period, when it doesn’t reveal financial information that may affect the stock price.

Pet Society on Facebook

At an industry event last week, EA chief operating officer John Schappert was asked about various rumors concerning EA acquiring other companies (he was also, by the way, asked about rumors concerning other companies potentially acquiring EA). “Schappert said he couldn’t comment on those rumors,” according to VentureBeat, “and that EA is in its quarterly quiet period just before it reports financial results in the next few weeks.”

We’ll see what EA has to say next week.

The company has $2 billion in cash; assuming any acquisition would be a combination of cash and stock, it could fairly easily afford to purchase Playfish. Other comments by Schapper are also interesting to parse in this context. He compared social games to mobile games last week, and called it a “bubble.” He was referencing his company’s purchase of mobile game maker Jamdat in 2005 for $680 million in 2005. “Schappert thinks that companies such as Zynga are ‘scrappy,’” according to the report, “but he noted that some of the startups will start to come down to Earth because they will have trouble making games for more than one platform.”

04_smallWhere is Playfish? Mostly on Facebook’s platform, to be sure, but it has also been expanding to the iPhone, Android devices, and other platforms. Also, Schappert said that the social gaming industry will mature in the next two years, and that popular social games will become familiar brands, “not games that we’ve never heard of.”

Those sound like mixed messages to us. EA has had a decent couple of quarters, but it has suffered during the recession along with other gaming companies. In the meantime, companies like Playfish have come to dominate gaming on Facebook. EA has tried and not had significant social gaming hits, to our knowledge. We believe an acquisition would make sense for the company, and given Playfish’s focus on making quality games, the fit could work.

But, as we wrote last week, there are various reasons why a deal wouldn’t happen. Perhaps, for example, Playfish has decided or will decide that its best opportunity is to go solo for the time being.

To dig deeper into the virtual goods market, check out our new report: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010.

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17 Responses to “More Rumors on EA-Playfish Deal: Due Diligence, Acquisition Numbers”

  1. More Rumors on EA-Playfish Deal: Due Diligence, Acquisition Numbers says:

    [...] > Continue reading over on Inside Social Games. Add Comment » [...]

  2. Hold everything – Playfish is still in play says:

    [...] In fact, we’ve learned that Playfish is still in play, and in all likelihood EA leaked the $250 million figure as a negotiating tactic, as this is more or less what it wants it wants to pay. Our sources say that Playfish is holding out for another offer, somewhere between $350m at the low end and $500m at the top end, either from EA or another suitor. Independently, Inside Social Games has uncovered similar chatter. [...]

  3. AutoBlog » Hold’em Or Fold’em? Looks Like Playfish Is Still In Play says:

    [...] In fact, we’ve learned that Playfish is still in play, and in all likelihood EA leaked the $250 million figure as a negotiating tactic. Our sources say that Playfish is holding out for another offer, somewhere between $350m at the low end and $500m at the top end, either from EA or another suitor. Independently, Inside Social Games has uncovered similar chatter. [...]

  4. Techcrunch « Blog-Feast.com Blog Collection says:

    [...] In fact, we’ve learned that Playfish is still in play, and in all likelihood EA leaked the $250 million figure as a negotiating tactic. Our sources say that Playfish is holding out for another offer, somewhere between $350m at the low end and $500m at the top end, either from EA or another suitor. Independently, Inside Social Games has uncovered similar chatter. [...]

  5. Trascendió en Mercadotecnia Interactiva | Fumada Estratégica says:

    [...] Electronic Arts estaría por comprar Playfish, la principal firma desarrolladora de juegos en redes …. Por acá escribimos sobre la importancia de este tipo de juegos y sus aplicaciones publicitarias. [...]

  6. Eric von Coelln says:

    EA definitely needs to do something in the social space. Their online flagship Pogo.com is flat (hovering around 5.5 million daily users for a year per Quantcast.com/pogo.com) and their demographic (heavily skewed female — 76% — and over 35) is migrating in droves to Facebook:

    Age //Feb-09 FB Women//Sep-09 FB Women//% Change
    55-65 // 717,260 // 3,284,500 // 458%
    45-54 // 1,377,440 // 5,913,360 // 429%
    35-44 // 3,598,800 // 8,659,040 // 241%

    Added to this, Pogo launched Facebook Connect yesterday — so EA know they need to reach this demographic and play in where the users are. Playfish or another developer is a quick way to get the expertise.

  7. Finance Geek » Rumors Put Playfish’s Price "North Of $400 Million” says:

    [...] will have to pay way more than that if it wants to reel in social games startup, gossipers tell Inside Social [...]

  8. EA’s Pogo.com Casual Game Site Gets Facebook Connect, Sort of says:

    [...] been covering how big game maker Electronic Arts may be making a big move into social gaming by acquiring top developer Playfish, but yesterday it made a separate social move. The company launched Facebook Connect for its casual [...]

  9. Hold’em Or Fold’em? Looks Like Playfish Is Still In Play | The Daily Tech Log says:

    [...] In fact, we’ve learned that Playfish is still in play, and in all likelihood EA leaked the $250 million figure as a negotiating tactic. Our sources say that Playfish is holding out for another offer, somewhere between $350m at the low end and $500m at the top end, either from EA or another suitor. Independently, Inside Social Games has uncovered similar chatter. [...]

  10. Rumors Put Playfish’s Price “North Of $400 Million” | Bizzmodels.com says:

    [...] will have to pay way more than that if it wants to reel in social games startup, gossipers tell Inside Social [...]

  11. More Rumors on EA-Playfish Deal: Due Diligence, Acquisition Numbers | umojahosting says:

    [...] > Continue reading over on Inside Social Games. VN:F [1.7.2_963]please wait…Rating: 0.0/10 (0 votes cast)VN:F [1.7.2_963]Rating: 0 (from 0 votes)Add this to Google BookmarksShare this on FacebookPost this to MySpaceTweet This!Share this on TipdSubmit this to Script & StyleShare this on FriendFeedShare this on BlinklistShare this on del.icio.usDigg this!Post this on DiigoShare this on RedditBuzz up!Stumble upon something good? Share it on StumbleUponShare this on TechnoratiShare this on MixxSubmit this to DesignFloatSubscribe to the comments for this post?Share this on LinkedinSeed this on NewsvineShare this on DevmarksAdd this to Mister WongAdd this to IzebyShare this on PFBuzzMark this on BlogMarksSubmit this to TwittleyShare this on FwispMoo this on DesignMoo!Share this on BobrDobrAdd this to Yandex.BookmarksAdd this to Memory.ruAdd this to 100 bookmarksAdd this to MyPlaceSubmit this to Hacker NewsSend this page to Print FriendlyBump this on DesignBumpAdd this to NingPost this to Identica [...]

  12. Top social gaming company Playfish may be acquired by EA for $400 million « Aalto Media Factory says:

    [...] recent post by Inside Social Games presents latest rumors about a forthcomingacquisition of Playfish by Electronic Arts. Their article reports that the two companies may have entered a [...]

  13. Social Gaming como el mercado de crecimiento de la industria | Denken Über says:

    [...] grandes jugadores de la industria de los videojuegos necesitan mantener sus resultados anuales, la posible compra de PlayFish por parte de Electronic Arts es algo tan lógico que no debería ni sorprendernos pero la realidad es que hay 3 mercados que [...]

  14. Top social gaming company Playfish may be acquired by EA for $400 million « Blog on Monetizing Storytelling says:

    [...] · 1 Comment A recent post by Inside Social Games presents latest rumors about a forthcoming acquisition of Playfish by Electronic Arts. Their article reports that the two companies may have entered a due [...]

  15. EA Buys Playfish in Deal Worth Up To $400 million says:

    [...] We and others had heard the deal was for $250 million at the time, but we heard a couple weeks later that it might be more. From our second article: [...]

  16. ThinkEquity Says It Advised Peanut Labs Deal says:

    [...] previously heard that JP Morgan may have worked on Playfish’s sale to Electronic Arts last year, and that Allen & Co has advised Zynga on its various funding rounds (hiring managing [...]

  17. Playfish CEO Coy On Acquisition Reports — paidContent says:

    [...] Social gaming firm Playfish has been the subject of several acquisition rumours recently – in particular, that Electronic Arts (NSDQ: ERTS) has already agreed to buy the social-gaming company for $250 million via Alley Insider) and, in another, that Playfish is just playing the field in search of an even bigger sale price (via TechCrunch and InsideSocialGames). [...]

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