LEAF Mobile’s innovative M&A approach leads it to snaps up another leading mobile games developer
Just under half of the global population has a smartphone, putting worldwide users at some 3.8 billion today.
That figure alone is impressive…
But did you also know that, of those 3.8 billion individuals, an extraordinary 2.6 billion are smartphone gamers?
Indeed, the size of today’s mobile gaming space is truly staggering.
And, in a sector this massive, there is—of course—plenty of money to be made.
In fact, almost half of all gaming industry revenues now come from mobile, and the space is set to deliver more than $100 billion of annual turnover by 2023.
Some forecasts even expect its annualized growth to average an impressive 12.6% over at least the next five years.
It’s no surprise, then, that companies are queueing up to seize this extraordinary potential for profits.
However, one name leading the pack by some considerable distance is Canada’s LEAF Mobile (TSX:LEAF | OTC:LEMLF).
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Indeed, this mobile gaming group is already generating tens of millions of dollars of revenue every year thanks to its existing portfolio of enormously popular IP-driven games and unique software kit for developers.
But now, it’s moving to the next level.
You see, Leaf is aggressively pursuing an extensive pipeline of M&A opportunities that can complement its offering and increase its scale.
And with the firm recently executing the latest step in this strategy with its purchase of mobile games developer and publisher Truly Social Games…
It’s unlikely to be long before we see attention from mainstream investors soar as revenues continue to multiply in the face of more organic growth and additional follow-on acquisitions.
Another impressive acquisition
Leaf’s aggressive M&A strategy has already seen it snap up two other gaming businesses called LDRLY Games and East Side Games.
Notably, the latter made it one of the biggest mobile gaming companies in Canada in a single deal.
Now, the acquisition of Truly Social Games extends Leaf’s group even further.
With the buy, Leaf expands an already solid games portfolio, which generated record first-quarter revenues of $25.3 million—an impressive 95% jump on the year before and 10% higher than the previous quarter.
But beyond this, Truly Social Games is also a perfect fit for Leaf.
Indeed, the acquisition not only adds a highly skilled team of 50 people spread across two studios to its team…
But Truly Social Games has already built some seriously popular titles, with its Planet Gold Rush game having hit 1 million installs, while its Idle Surfing game is the number one free download on the App Store in Brazil.
The company has even worked with Leaf itself already on the Archer: Danger Phone game, which was published by the latter’s ESG studio.
Indeed, it’s because the newly acquired business used Leaf’s IdleKit technology to develop the game, an idea we will come back to shortly.
Leaf will initially acquire 20% of Truly Social Games for a preliminary investment of up to $3 million. This will allow the latter to develop four new game titles, two of which are set for a worldwide launch by Leaf in the second half of 2021.
Itwill then acquire the remaining 80% interest in Truly Social Games across two tranches, based on revenue targets.
Critically, if these targets are hit, then Leaf expects to generate impressive annualized revenues of around $60 million in the current year.
An ingenious pipeline strategy
Zooming out for a moment, and Leaf’s acquisition of Truly Social Games is an excellent example of its clever M&A strategy in action.
This is where we come back to IdleKit, the company’s software development platform built with the goal of de-risking mobile game development and improving the odds of success.
IdleKit became part of the firm when it bought East Side Games earlier this year.
And not only does Leaf itself make use of the platform when developing its own titles, but other third parties can also license the technology to build their own games.
The benefits of this arrangement are numerous for Leaf.
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First, it receives high-margin SaaS revenues in exchange for letting developers use IdleKit…
Second, in most cases, the company publishes these games on behalf of third-party developers and gets a bigger cut of games revenue…
But third, and perhaps most importantly, Idlekit also serves as a pipeline for M&A targets, bringing in a long list of acquired growth opportunities.
You see, by licensing IdleKit to developers, Leaf can learn about these business partners and gain insight on how they might strengthen its own offering through acquisition.
It’s due diligence in action…
And Truly Social Games is a prime example, having been an IdleKit customer that has now become part of the company itself.
As chief executive officer, Darcy Taylor, put it in a June release on the deal…
“[IDLEKIT] ALLOWS US TO FAMILIARIZE OURSELVES WITH OTHER TALENTED STUDIOS THAT MAY MAKE GOOD ADDITIONS TO LEAF.”
From here, perhaps the most exciting thing is that Leaf still boasts many more industry-leading game developers as IdleKit partners beyond Truly Social Games.
One example is Bigfoot Gaming, which entered a multi-year publishing and IdleKit partnership deal in April to release an as-yet-undisclosed iOS and Android game…
Another is Game Masons, which will develop a sports-themed mobile game…
And a third is TinyRex Games, which will use IdleKit to develop three games, including one based on The Wizard of Oz.
Of course, all of these partners bring in revenue by themselves through their use of IdleKit.
But the real value could come over the medium-to-long term if they become acquisition targets and provide Leaf with extended growth and scale in the booming mobile market.
An unmatched opportunity
Bottom line is, being a leading player in the mobile gaming market is an extremely valuable position given the level of growth on offer.
With Leaf, you get a company that not only boasts strong revenue from its own game portfolio and from its IdleKit platform…
But you also get a company with a revolutionary M&A strategy that is already delivering opportunities like Truly Social Games right into its path.
With plenty more organic and acquired growth on the cards, the time to seize this opportunity with both hands is now.
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