Digital Extremes Targeted For Acquisition

 In Acquisition/Investment, News
Warframe Upgrade-S

One reason Digital Extremes is an acquisition target is the F2P game Warframe.

JULY 8, 2014 • In a disclosure with the Hong Kong Stock Exchange, Sumpo Food Holdings Ltd. has outlined its intent to partner with Perfect Online Holding Ltd. to acquire Ontario, Canada-based developer Digital Extremes Ltd. The Chinese firms have entered into a non-binding term sheet with the studio under which Digital Extremes agrees not to seek other buyout offers for 40 days without permission while a due diligence investigation is undertaken. No financial terms were mentioned in the securities disclosure. Longyan-based Sumpo is a supplier of chicken and meat products to consumers and companies in China, including Kentucky Fried Chicken. Perfect Online is the wholly-owned Hong Kong subsidiary of Perfect World Co., Ltd. Digital Extremes is best known for development work on the Unreal, Homefront, Bioshock,  and Warframe franchises.

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Impact: As far as we can tell Sumpo has not been previously involved in the games industry since being listed in 2011. A purveyor of meats and poultry makes for an intriguing partner in a studio acquisition. An analogy would be if Tyson Foods, Inc. made a run at Gearbox Software. Then again there is a lot we do not know about this partnership, most critically the percentage of funds being dedicated by both sides. It all may come down to personal relationships between executives as to why Sumpo is jumping outside its primary competency. For years now DFC has been saying there is too much liquid capital in the hands of big Chinese game companies for there not to be a run on Western studios and publishers. So far, most of the acquisitions have been smaller developers. However, in cases such as Riot Games, the return on investment has been huge. Digital Extremes has an established pedigree after many years in the games business and work on high-profile projects. The studio’s current major release, the free-to-play Warframe, fits in well with Perfect World and must be part of the attraction of acquiring Digital Extremes. Perfect World is already doing well managing Dota2 in China, and adding a worldly third-person shooter like Warframe makes sense. Steam already hosts a Chinese-language community group, and the version of the game available for the PS4 through Sony in Asia is localized for Chinese, Korean, and English as well as Japanese. A version of the game is expected for the Xbox One at some point. With both consoles making their official entries into the Chinese market this fall, acquiring a game that already has a foothold with Chinese players is a good play.

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