Tencent shifts focus to majority deals, foreign gaming assets for growth

HONG KONG, Oct. 1 (Reuters) – Tencent is realigning its M&A strategy to put more focus on buying majority stakes, primarily in foreign gaming companies, as the tech giant sees global expansion to offset slowing growth at home in China, people with direct knowledge of said case.

Tencent Holding Ltd (0700.HK) has been investing in hundreds of emerging companies for years, mainly in the onshore market. It has typically acquired minority interests and has remained invested as a passive financial investor.

However, it is now aggressively seeking majority or even control of interests in foreign targets, particularly in gambling assets in Europe, the four people with direct knowledge of the matter told Reuters.

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The shift comes at a time when the world’s largest gambling company is counting on global markets for its future growth in revenue, which will require a strong portfolio of top games, the sources say.

Tencent’s new strategy highlights how China’s tech titans are looking to emerge from the regulatory shadows after two years of crackdowns and uncertainty that weighed on their home sales and caused a massive sell-off of their shares.

Aside from the core gaming sector, Tencent is also looking for global assets, particularly in Europe, related to the so-called metaverse, said one of the sources and another source with direct knowledge of the matter.

The people did not want to be identified because the information was private.

Tencent told Reuters that the company had been investing abroad for a long time — “long before there were any new regulations” in China. It looks for “innovative companies with talented management teams” and gives them room to grow on their own, the company added, without elaborating.

Tencent’s pursuit of bigger stakes in gaming companies comes as other tech giants such as Microsoft, Sony (6758.T) and Amazon are seizing gaming assets and related intellectual property, three of the sources said.

Tencent’s chief strategy officer, James Mitchell, said during a post-revenue call in August that the company would remain active in acquiring new game studios abroad.

“In terms of the gaming business, our strategy is … to focus on developing our capabilities, especially in the international market,” he said. “We will continue to be very active in acquiring new game studios outside of China.”


Tencent’s growing focus on foreign assets and markets is in stark contrast to the much slower pace of domestic deal making since the tightening of regulations and the divestment of a number of domestic portfolio companies.

According to data from Refinitiv, the owner of China’s number one messaging app WeChat made 150 investments totaling $75 billion domestically between 2015 and 2020, compared to 102 deals worth $33 billion in overseas markets.

Tencent reported its first-ever quarterly revenue decline in August, hurt in part by a lack of game approvals in China and regulations limiting game time. Revenue from online games fell by 1% both at home and abroad.

Shares listed in Hong Kong have fallen about 60% in the past two years.

Against that background, Tencent has barely made any investments in China this year, facing 27 deals worth $3 billion offshore, data from Refinitiv shows. It has reduced its portfolio, in part to appease regulators and also to make hefty profits, sources have told Reuters.

“We believe Tencent will continue to make reasonable investments to acquire high-quality game content and talents and deepen partnerships with top studios around the world to increase its investment and presence in overseas markets,” Citi analysts said in a report in early September. .

Tencent’s pursuit of larger stakes in its existing gaming portfolio or new targets would give the company a greater voice in the operations of such companies and also help protect the intellectual property rights of popular games, the four sources said.

Also, with Beijing strictly restricting game approvals domestically and still suspending approvals for games from foreign IPs, Tencent is forced to take control of foreign game companies and their IPs, the four sources said.

Tencent increased its stake in Ubisoft (UBIP.PA) in September in a deal that made the Chinese company the largest shareholder in the top French games developer, with an 11% stake that could be further increased to as much as 17%.


The deal with Ubisoft comes just after Tencent acquired Copenhagen-based Sybo Games, the developer of the popular mobile game Subway Surfer, in June and took a 16.25% stake in Japanese “Elden Ring” developer FromSoftware in August.

Last year, Tencent said it would acquire British video game developer Sumo in a $1.3 billion deal — one of the largest foreign transactions since the regulation came into effect in late 2020.

In Europe, in addition to acquiring a majority stake in “Clash of Clans” mobile game maker Supercell for $8.6 billion in 2016, Tencent has negotiated mostly minority deals for years, including the purchase of 9% of UK gaming company Frontier Developments.

Elsewhere, Tencent is also looking to increase its investment in Southeast Asia and dig deeper into Southeast Asia, as it sees the region — home to 650 million people — has potential to replicate the success of China’s internet boom, two of the leaders said. sources.

China’s largest social networking company already has a regional hub for Southeast Asia in Singapore, where its international game publishing house is based.

Since last year, the company has repeatedly emphasized that it aims to get half of its gaming revenues from outside China, up from about 25% now. In addition, in December, it launched a new publishing brand called Level Infinite in Singapore.

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Reporting by Julie Zhu and Josh Ye; Editing by Sumeet Chatterjee and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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