Zynga buys Empires & Puzzles gamemaker in largest deal to date

(This corrects paragraph 7 of December 20 story to say Zynga acquired a unit of Peak Games, and not the entire company. The error also appeared in an earlier version)

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

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

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

Zynga - best-known for popular Facebook game FarmVille - also raised its fourth-quarter revenue forecast on Thursday. Its shares rose 1.67 percent in after-market trading, to $3.65.

Zynga sees potential in bringing 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 plus a small amount of advertising. The acquisition is expected to add to Zynga’s earnings in 2019.

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

The cash-and-stock deal for Small Giant, which is expected to close on Jan. 1, follows Zynga’s deal last year to buy a unit of Peak Games, home to games such as “Spades Plus” and “Gin Rummy Plus,” for $100 million.

Zynga said it would buy 80 percent of privately-held Small Giant now for $560 million and the remaining 20 percent over the next three years based on profit goals. The implied value of the deal is $700 million, although the final number could vary based on how Small Giant performs.

Small Giant has raised just under $50 million in venture capital funding and is backed by EQT Ventures.

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

It now sees revenue of $243 million, up from an earlier expectation of $235 million, while its 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