Game investment adviser Digi-Capital says the social games market could experience major consolidation in 2012, based on how many developers it's worked with that are looking to sell themselves this year.
It says the catalyst driving consolidation in this sector could be social games companies having difficulties maintaining high revenues and profits for their games. Digi-Capital points to total daily active users and average daily active users as indicators for revenues and profits, respectively.
The group says that some major companies (e.g. Zynga, Wooga, King.com, Electronic Arts) are having little trouble keeping their revenues and profits high, but Digi-Capital argues that its analysis indicates many social game companies might be struggling on one or both measures.
It also notes that Zynga's recent $210 million deal to purchase Draw Something maker Omgpop could change how the social game giant's competitors proceed. Digi-Capital predicts that well-funded companies might invest heavily to try to manufacture a similar hit, with the hope of being acquired at a high valuation.
The firm says a hit-driven operational investment approach is risky, though. It points out, too, that companies like King.com (Bubble Witch Saga) and Wooga (Diamond Dash) have avoided this strategy and continued to focus on trying to build a strong portfolio of games for sustainable growth.
2011 was a record year for mergers and acquisitions in the social game space, with 113 transactions generating $3.4 billion in transactions, with an average value of $30 million. According to Digi-Capital's review of transactions in the first quarter of 2012, 30 mergers and acquisitions generated $1.7 billion in transactions, with an average value of $57 million.