After rumors surfaced that Sony was considering acquiring Hong Kong gaming company Leyou Technologies, the focus is now shifting to Tencent. In a note to investors, Leyou confirmed that it is in talks with Tencent about an acquisition. The two companies agreed to terms on a three-month exclusive window for talks about Tencent taking Leyou private. This effectively ices out any other firm from acquisition talks — and that includes Sony and its PlayStation brand.
Leyou is an appealing acquisition target because it has a number of talented game-development studios. Most notably it owns Dirty Bomb developer Splash Damage and 97% of Warframe studio Digital Extremes. Splash Damage is also currently working with Microsoft on Gears Tactics and Google Stadia on an unannounced project. And it’s that capability to build modern service games for PC that makes Leyou so attractive.
“Tencent continues its global expansion efforts with acquisitions of studios that augment the company’s exposure in PC, mobile, and console development for China and for global markets,” Nike Partners analyst Daniel Ahmad writes in a note provided to GamesBeat. “Leyou owns a number of studios that have expertise in global online free-to-play game development for console and PC, an area that Tencent is actively exploring as it expands overseas.”
Tencent is huge in global mobile gaming. It’s the company that adapted PlayerUnknown’s Battlegrounds for smartphones. But it wants to ensure it has a similar presence on PC. Leyou can unlock that.
Leyou’s studios could also benefit from a Tencent partnership
But the exchange of experience is a two-way street. While Leyou’s teams can bring deep insights into best-practices for live-service PC games, Tencent can also capitalize on Warframe and other properties on mobile.
“Tencent’s mobile expertise can also help studios under Leyou bring their titles to smartphones,” writes Ahmad. “Warframe is Leyou’s largest title, accounting for $175 million, or 80%, of revenue generated in 2019. The game is licensed by Changyou in China and is also available on [Tencent’s Steam-like] WeGame locally.”
With 60 million registered players, Warframe has already proved its capability to bring in players. Digital Extremes continues to prove the game’s longevity after growing in each concurrent year since 2013. Mobile could potentially add to those numbers in a significant way.
Finally, a Leyou acquisition would give Tencent exposure to some important properties.
“Leyou has numerous titles in development, including games based on popular IP such as Lord of the Rings and Transformers,” writes Ahmad. “That can help diversify revenues in the future.”