| TOKYO/HELSINKI/SAN FRANCISCO
TOKYO/HELSINKI/SAN FRANCISCO Japanese tech and telecoms group SoftBank Corp is paying 150 billion yen ($1.53 billion) for a 51 percent stake in Finnish mobile game maker Supercell, valuing the small maker of hit games "Clash of Clans" and "Hay Day" at $3 billion.
Softbank's bid to claim a leading role in the fast-growing mobile games market makes 3-year-old Supercell, with about 100 employees and just two free-to-play games, more valuable than Zynga Inc, the $2.8 billion company behind former hits such as "FarmVille."
Twenty percent of Softbank's investment will come from its mobile games maker subsidiary, GungHo Online Entertainment Inc, which has a market capitalization of about $8.3 billion.
Softbank's offer values Supercell, with daily revenue of about $2.4 million mainly through the sale of in-game, virtual items, at about 3.5 times projected annual sales. That is cheaper than several major recent deals such as Electronic Arts' acquisition of PopCap in 2011, which went through at about 10 to 11 times sales the year before.
Market researcher Newzoo estimates global game revenues across all platforms will reach $86.1 billion by 2016 as the number of gamers reaches 1.55 billion. It expects the fastest growth to come from mobile gaming, which will make up almost 30 percent of the total, up from about 17 percent this year.
The deal shows SoftBank Chief Executive Masayoshi Son's appetite for foreign M&A has not dimmed since his $21.6 billion acquisition of U.S. mobile carrier Sprint Corp this year.
He was quoted on Supercell's blog as saying the acquisition was part of its "quest to become the #1 mobile Internet company," showing his ambition to expand further beyond its main wireless and Internet services business.
"Mobile games are a growth market; however, franchises in mobile have been particularly tenuous," Hudson Square Research analyst Daniel Ernst said. "Look at the experiences of Zynga and Glu."
From that perspective, the Supercell deal is potentially risky.
"But it's a talented team and Softbank thinks very long term," Ernst said.
The deal underscores the spectacular rise of Supercell, which was founded in 2010. Its hit games "Clash of Clans" and "Hay Day" reached No. 1 in Apple's App Store in 137 and 96 countries, respectively, SoftBank said, citing app analytics firm AppAnnie.
Supercell and GungHo developed a relationship after striking a partnership to launch strategy game "Clash of Clans" in Japan this July, Supercell CEO Ilkka Paananen said in a telephone interview.
"How this came about is we've been very excited about the Asian market, and Japan especially, for the last 6 to 9 months ... since we launched Clash in Japan and it obviously started to do very well," Paananen said.
"Clash of Clans" ranks among the top three iOS games in Japan and China, he added.
Last year sales at Supercell rose by more than 500 times to 78.4 million euros compared with 2011, according to a filing by SoftBank, while turning a profit of 39.2 million euros after a loss of 1.8 million in 2011.
"Now that we have Softbank backing us we can take (our)existing games to new markets and strengthen our position in the big three Asian markets - Japan, Korea and China," Paananen said.
Supercell also plans to release new games at some point, Paananen said without providing a timeline.
SoftBank has the third largest market capitalisation in Japan and is set for a major windfall as Alibaba, China's top online retailer in which it owns a 36.7 percent stake, is preparing for a stock market listing.
Moreover, the tech and telecoms giant is also in final stages of talks to buy a majority stake in U.S. wireless device distributor Brightstar Corp in a deal estimated to be worth slightly more than 100 billion yen, according to a Nikkei report.
Since Electronic Arts' $1.3 billion purchase in 2011 of casual and mobile game maker PopCap, known for "Plants vs. Zombies," Softbank's investment is the first billion-dollar mobile gaming deal.
PopCap's revenue was over $100 million in 2010 before its acquisition. Supercell is raking in about the same with sales of about $106 million or 78.4 million euros last year, according to Softbank's filing.
Venture Capital firms like Index Ventures, Accel Partners and Atomico have invested in Supercell over the last two years.
Supercell said earlier this year that it had raised $130 million through a secondary funding round, led by Index Ventures in February at a valuation of $770 million.
Globally, mobile game revenues generated through Apple iOS and Google Playstore are expected to exceed $10 billion this year, according to Adam Krejcik at technology and gaming research firm Eilers Research in California.
Led by "Angry Birds" maker Rovio, Finland's gaming industry has been a rare bright spot in a small Nordic economy which has struggled with a decline in traditional industries such as paper and machinery as well as the decline of Nokia, once the world's biggest handset maker.
Paananen, who will remain as CEO of Supercell, said the company will work autonomously.
"The most important point in the deal for us is that it guarantees our independence," Paananen said.
In a company blog post, he also reassured Finns that the company's operations would remain in Finland and that it would continue to pay taxes in the country.
"I think more and more people in this country are realising that there is life after Nokia!" he wrote.
(Editing by Richard Chang)