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🚀 Playtika recently made a bid for Angry Birds’ creator, Rovio. We dive into the details and why Rovio makes a great asset.

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Angry Birds maker Rovio has entered preliminary discussions with interested bidders following a ‘surprise’ all-cash proposal worth approximately €750 million from Israel-based Playtika in January.

The casual and social casino publisher—which currently has a market cap of $3.7 billion—first went public with its offer on January 18. An acquisition on these terms would represent a 55% premium on the Finnish company’s closing share price the day prior.

But this wasn’t Playtika’s first offer. The company disclosed that it had already submitted a bid on November 16, 2022, for €8.50 a share, when the stock was actually trading slightly higher. Playtika noted that Rovio’s IP, namely the Angry Birds franchise, plus the scale of its user base would combine well with its monetization and live ops expertise. Read: Playtika thinks it can get more out of the current portfolio, which following the Finnish outfit’s underperformance during the last quarter, along with some inexact future investments, is not a far-fetched proposition.

In response, Rovio said that its takeover bid “was made public nearly simultaneously with its submission to the board, and Playtika's announcement has not been coordinated with the board of Rovio in any manner” (bear hug, anyone?). It’s now conducting a strategic review with “certain parties” over a potential sale. So Playtika is getting the movement it wanted.

What Makes Rovio Underperform?

Both offers are a far cry from the Finnish publisher’s peak share price of €11.87 prior shortly after it went public, and well below the rumoured $3 billion valuation from Tencent pre-IPO or some expectations of a $2 billion offering.

Post-IPO dips are not unique to Rovio—it’s happened to numerous firms, including Zynga, which ultimately sold to Take-Two while trading below its initial highs. (Eric Kress has his views on how well that deal went). In Rovio’s case, it launched at €11.50 per share, following what the publisher described as “very strong” demand for its shares.

Despite calling out ambitions for growth, it did anything but. In its Q4 2017 financial report—its first full quarter as a public company—Rovio admitted it was unable to significantly scale what it had previously identified as growth titles. These efforts were hampered by what it identified as increased market competition, particularly in the puzzle genre. At the time, Playrix was busy scaling what would be a multi-billion dollar hit in Homescapes and went to war with AppLovin and Matchington Mansion. 

Its main investment involved pumping a planned €10 to €15 million into the ill-fated 5g streaming service Hatch, impacting the company’s margins. With all due respect to the team, which was spun out of Rovio itself, this deal was a much riskier proposition than being more aggressive with marketing its top titles or investing in talented studios already working on much more easily scalable games with promising KPIs. Hatch was ultimately shut down after very public attempts to sell the platform and technology, but which didn’t yield any buyers. Failing to get buyers speaks volumes about the quality of Hatch. Overall, ever since going public, the service has been another costly weight on profits.

Other capital that could have been used for more aggressive growth—the entire reason behind the IPO—instead went into dividends. Following its first full quarter as a public company, its market value halved in short order. The plan clearly did not live up to expectations.

Now years later, Rovio’s games division has seen little overall growth, with revenue remaining stable thanks to new titles like Angry Birds Dream Blast—which increased bookings by 33.4% in Q4 2022 despite overall Rovio revenue decline—and a stable core portfolio. Its flagship game remains Angry Birds 2, thanks to a successful rebirth in 2016 (see Deconstructor of Fun’s breakdown here) and live ops ever since.

While the industry has been rife with large acquisitions during the past few years, Rovio has been quieter. Its biggest move after the Hatch investment was the purchase of the hypercasual studio Ruby Games (Hunter Assassin) in 2021. Its other deals were less notable, acquihires of start-ups Darkfire Games in 2020, whose title Darkfire Heroes was later dropped into “maintenance mode”, and Playraven in 2018. These acquisitions have had little impact on revenue. In 2017, the company generated €297.2 million, while five years later 2022, it accumulated €317.7 million. And with hypercasual being dead, the only acquisition Rovio has made since going public looks ill-advised in hindsight.

Rovio’s Ownership Structure Tells a Lot

Rovio is unlike other games and growth companies: it pays out dividends. Meaning that it gives away part of the earnings to its shareholders. Which as noted, means less cash for investment in growth. And it also means that the company’s strategy is likely to maximize against yearly dividends, which leads to being inherently risk-averse. The Hatch misfire will likely make Rovio even more cautious about investments.

A peek at Rovio’s dominant shareholders shows a company that maintains significant ties to the Hed family (the company was co-founded by its former CEO Mikael Hed, while Kaj Hed previously acted as chairman). Niklas Hed maintains a position on the board of directors at the largest shareholder, Rovio itself. Meanwhile, the next three top shareholders each have their Managing Directors listed as a member of the Hed family. Niklas also owns a personal stake, with each of these shareholders owning a combined current market value (at the time of writing) of approximately €229 million, and accounting for over 30% of shares.

That stake is notable because, as analyst Joost Van Dreunen points out, according to Finnish law, Playtika needs to reach a 90% threshold to complete a takeover. This means the family has great influence over any deal: whether it decides to sell up or maintain Rovio’s status quo as a cash cow for (family) dividends each year. The combination of this, plus risk-averse pension funds, is another cap on growth, as they are optimizing for EBITDA, not a rocket ship.

This is perhaps one reason why Playtika went public with its latest bid in an effort to force further negotiations and a possible sale (with a previous bid seemingly rejected). Refusing the takeover could lead the company’s share price to dwindle since it shows there’s no interest in a sale (so no exit), and leaves Rovio without meaningful capital to invigorate its flagship, but ageing, IP.

Playtika’s Plans

Playtika’s post-IPO fortunes are not all that dissimilar to Rovio’s. Its shares have crashed, currently trading at approximately a third of the share price it went public at. Despite riding the pandemic-boost to its business, the social casino market has been hit hard by changes to App Tracking Transparency. Like all publicly traded companies (except for Rovio), it’s desperate for growth.

In its Q3 2022 report, Playtika stated that its social casino revenue declined by 10.2% year-over-year to 45.1% total revenue. Meanwhile, casual, where Rovio would fit in, grew by 14.4% Y/Y to 54.9% of total revenue. In Q3 2021, social casino held a majority share of revenue, so Playtika clearly sees casual as its area for the growth it wants, with titles such as June’s Journey, Bingo Blitz and Solitaire Grand Harvest also experiencing double digit revenue increases in Q3 Y/Y.

Despite a rise in casual game revenue, net income was down in Q3 and Playtika has sought to axe staff and close studios in recent months. MobileGamer.biz reported in December that the firm would axe more than 600 employees, a 15% reduction in its workforce, consolidate studios and remove three titles from its product pipeline. In October, Playtika confirmed it had closed Best Fiends developer Seriously, with nearly all of its 120 staff affected. Management of the title was moved to its Israel HQ and Poland. 

According to the report, a source claimed the closure came after disagreements over the direction of the company, with Playtika, focused on increasing KPIs and growing its flagship title. Another acquisition, Helsinki-based Reworks, also saw monetization and live ops functions for the title moved from Helsinki to Israel.

Judging by Playtika’s public statement on its Rovio bid, it has similar plans to leverage the company’s existing portfolio. It’s important to note, too, that in the background of all this, Playtika has been eyeing up a potential sale of its own. Owning and investing in a key mobile IP could help not only grow its casual business and diversify away from the struggling social casino genre but also make it a more attractive investment. One thing is for sure: the strategy would center on more aggressive growth than Rovio has achieved since its IPO.

What Makes Rovio Such a Juicy Target?

Rovio has one of the most famous mobile gaming IPs on the planet, Angry Birds. In a post-ATT world, having such a recognizable, world-class franchise in-house is incredibly valuable. The company itself is also profitable and comes with a hit title in Angry Birds 2 and the growing Angry Birds Dream Blast.

Rovio’s talented teams and world-class IP are a smart buy for a large publisher or big entertainment company. Netflix or Disney could utilize Angry Birds to continue growing its games service while expanding it as an entertainment property, a strategy that has had its wings clipped since the disappointing Angry Birds Movie 2.

Playtika likely sees a different kind of potential for a company once worth multiples of its current value. It may be as ruthless as it’s been with other acquisitions: strip the company for parts and start more aggressive monetization practices to squeeze the most out of the IP.

By going public, Playtika is showing its hand by telling the world just how valuable it thinks Rovio and Angry Birds can be. It’s strong-arming the owners to try and force a sale, while also laying down the gauntlet to any other interested parties.

Written by Craig Chapple, a games industry analyst, and a part-time journalist

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