Video game giant Electronic Arts (NSDQ: ERTS) is spending $750 million to acquire PopCap Games, the maker of Bejeweled and Plants vs. Zombies, in a move to bolster its position amid increasingly fierce competition from Zynga and other online game companies. The deal includes a performance payout for PopCap, which could bring the total value to $1.3 billion.
The PopCap acquisition is clearly intended to broaden EA’s footprint beyond the traditional console and PC market, with approximately 80 percent of PopCap’s 2010 revenue coming from “high growth digital platforms,” according to the companies. Seattle-based PopCap’s games are available on the iPhone, the iPad, and Android, as well as social networking leader Facebook.
During a conference call after the deal was announced, EA CEO John Riccitiello said the acquisition made strategic sense by furthering the company’s “digital transformation.” Citing the exploding market for games on social networks and mobile platforms, Riccitiello said the company estimates that 64 percent smartphone users play games on their devices. He also said the deal would strengthen EA’s position in the casual gaming market and would establish EA as a “clear number two on Facebook.”
Zynga, of course, dominates the Facebook gaming market, but it’s not the only competitor EA faces, as the online video game market explodes. Last year, Walt Disney (NYSE: DIS) bought fast-growing social game developer Playdom in a $763.2 million deal.
Over the last several years, EA has made a series of acquisitions. In 2006, EA bought mobile gaming company Jamdat, for $680 million. One year later, EA paid $860 million to acquire VG Holdings, the parent of video game producers BioWare and Pandemic Studios. Two years ago, EA paid $275 million in cash and up to $100 million in incentives for Playfish.
PopCap was founded in 2000 by John Vechey, Jason Kapalka and Brian Fiete, and soon had a big hit with Bejeweled. The company raised $22.5 million from Meritech Capital Partners in 2009 and had revenue of over $100 million in 2010. The company will remain headquartered in Seattle and will not lay off any of its 400 employees as a result of the deal, GeekWire reported.
Earlier this year, EA CEO Riccitiello had said the company would be focused on smaller acquisitions. At the time, many observers expected the fast-growing PopCap to go public in 2012. But once PopCap indicated it was for sale, EA, which had eyed the company for years, stepped in with an offer, he said.
EA CFO Eric Brown said the performance payout was designed to align the shareholder interests of both EA and PopCap. In order to reach the maximum performance payout of $550 million, PopCap needs to generate earnings of $343 million or more within the next two years.
EA shareholders reacted tepidly to the deal, driving the company’s stock down 3.81 percent in after-hours trading.