The video game industry recorded an unprecedented level of transaction in the first half of this year and is set for a long-term investment explosion.

Research published by institutional stockbroker Arden Partners reveals that the global market recorded a deal flow of $60 billion in gaming and eSports combined, compared to just $34bn in the whole of 2020. 

Overall, there were 635 completed transactions, including 169 M&A deals and 364 private placements. The industry is now worth $170bn, outpacing both the music ($20bn) and film sector ($43bn).  

Arden believes that while the industry is scheduled for a short consolidation period in the second half of 2021, it is set to record exponential growth over the long-term thanks to the rapid acceleration of the ‘metaverse’ and virtual reality that is peaking investor interest. 

Videogame AdTech Admix raises £18m to ‘monetise the metaverse’

Virtual reality is the fastest-growing market segment as UK revenues grew by 31.7% this year and are projected to increase at the same rate over the next five years.  

The rise of virtual spaces where gamers can create and explore with other people through online avatars has led to significant technology conglomerates such as Facebook, Amazon and Google hiring thousands of employees to work on the development  and rebrand their purpose towards becoming leaders in the space.  

The COVID-19 pandemic and repetitive lockdowns has also helped spark significant growth in the games market, shattering revenues, user, and growth records. Every quarter in 2020 broke its respective revenue record. As a result, the sector has seen a number of AIM IPOs in the UK and Ireland, including Frontier Development, Keywords Studios, Sumo, Codemasters and TinyBuild.

The UK AIM IPO market itself is buoyant right now, outpacing the main market, and Arden considers gaming a very attractive sector for new capital. 

It says a significant proportion of this capital is likely to be invested in cloud gaming. Gaming-as-a-Service is still relatively in its infancy, and in 2020 was worth $1bn, but thanks to advancements in network data farms is forecasted to be worth $30bn by the end of the decade – progressing on a similar trajectory to other sectors adopting cloud technologies such as the banking industry.  

Inside UK’s £1 billion videogame franchise RuneScape

Alex DeGroote, research director at Arden, explained: “The video gaming industry is set for an explosion of investment over the next decade. The unprecedented growth recorded in 2020, accelerated by the pandemic, has put the sector on a really strong footing and its growth is only set to continue. It’s no surprise that companies want a piece of the pie. 

“By 2025, it is predicted the industry will generate more than $260 billion in revenue as more  technological breakthroughs occur leading to further investment of capital.”