Zynga buys Empires & Puzzles gamemaker in the largest deal to date

(Reuters) – the U.S. software company Zynga Inc (ZNGA.O) said on Thursday it would buy a majority stake in Finland-Small Giant Games, maker of the popular Android game Empires & Puzzles, for approximately $700 million, in a move to strengthen its mobile game portfolio.

The Zynga logo is pictured at the company’s headquarters in San Francisco, California on April 23, 2014. REUTERS/Robert Galbraith/File Photo

It is the largest deal to date for Zynga, Chief Executive Frank Gibeau said in an interview, topping the $527 million acquisition of UK developer Natural Motion in 2014.

Zynga – best known for the popular Facebook game FarmVille – also increased in the fourth quarter revenue forecast on Thursday. The shares increased 1.67 percent in after-market trading, to $3.65.

Zynga sees potential in bringing a smartphone role-playing game, Empires & Puzzles to countries in Asia where games of the type are popular, with Gibeau citing Japan, South Korea and China as potential markets.

He said the 18-month-old game was profitable, making money from in-game purchases and a small amount of advertising. The acquisition is expected to add to Zynga’s profit in 2019.

Under Gibeau, who became CEO in 2016, San Francisco-based Zynga has tried to renew itself as a mobile-focused games maker and is looking for new games to spark growth after a challenging year that saw earnings disappoint. The shares are down 10 percent year-on-year.

The cash-and-stock deal for Little Giant, which will be closed on Jan. 1, follows Zynga’s deal last year to buy Peak Games, home to games such as “Spades Plus” and “Gin Rummy Plus” for $100 million.

Zynga said it would buy 80 percent of private Small Giant, now for $560 million, and the remaining 20 percent in the next three years on the basis of the profit targets. The implied value of the deal is $700 million, although the final number may vary depending on how the Little Giant performs.

The little Giant has raised just under $50 million in venture capital funding and is supported by EQT Ventures.

In the raising of its fourth quarter revenue forecast, Zynga credited for the popularity of the games “Words With Friends”, “the Merging of Dragons!” and “CSR Racing 2” during the holiday season.

It now sees revenue of $243 million, against a previous expectation of $235 million, while the net loss forecast was lowered to $1.5 million from an earlier $2 million.

Reporting by Vibhuti Sharma in Bengaluru and Liana B. Baker in New York; editing by Leslie Adler and Rosalba O’brien

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