For years, Tencent Holding Ltd has invested in hundreds of promising companies, mainly in the domestic market. It generally acquired minority stakes and remained invested as a passive financial investor.
However, it is now seeking majority or even controlling stakes in foreign targets, including gaming assets in Europe, the four people with direct knowledge of the matter told Reuters.
The change comes as the world’s number one gamer by revenue relies on global markets for its future growth, which requires a strong portfolio of successful games, the sources added.
Tencent’s new strategy shows how Chinese tech titans are seeking to emerge from the regulatory shadows after two years of repression and uncertainty that have weighed on their sales in the country and triggered a massive drop in their stocks.
Besides the core gaming business, Tencent is also looking to grab global assets, especially in Europe, tied to what’s known as the metaverse, one of the sources and another source with direct knowledge of the game said. question.
The people declined to be identified because the information is private.
Tencent told Reuters the company had been investing overseas for a long time – “long before any new regulations” in China. It seeks “innovative companies with talented management teams” and gives them the opportunity to grow independently, the company added, without giving further details.
Tencent’s search for larger stakes in video game companies comes as other tech giants such as Microsoft, Sony and Amazon are grabbing video game assets and related intellectual property, three of the leaders said. sources.
Tencent chief strategy officer James Mitchell said on a post-earnings call in August that the company would remain active in acquiring new game studios overseas.
“In terms of the games business, our strategy is … to focus on developing our capabilities, especially in the international market,” he said. “We will continue to be very active in terms of acquiring new game studios outside of China.”
THE PURSUIT OF LARGER SHAREHOLDINGS
Tencent’s growing interest in foreign assets and markets contrasts sharply with the much slower pace of its transactions in the country since the intensification of regulatory repression and the divestment of a handful of companies from the domestic portfolio.
From 2015 to 2020, the owner of China’s number one messaging app, WeChat, made 150 investments in the country totaling $75 billion, compared to 102 deals worth $33 billion in the markets. foreigners, according to Refinitiv data.
In August, Tencent reported its first quarterly revenue decline, partly due to a lack of gaming approvals in China and regulations that limit playing time. Online gaming revenue declined 1%, both in China and abroad.
Its Hong Kong-listed shares have fallen about 60% over the past two years.
Against this backdrop, Tencent barely made investments in China this year compared to 27 deals worth $3 billion overseas, according to Refinitiv data. The company trimmed its portfolio partly to appease regulators and also to post strong profits, sources told Reuters.
“We believe that Tencent will continue to make reasonable investments to acquire talent and quality game content and deepen partnerships with leading studios around the world to intensify its investment and presence in overseas markets,” Citi analysts said in a report in early September.
Tencent’s pursuit of larger stakes in its existing games portfolio or in new targets would give it greater scrutiny over the activities of those companies and also help it land the intellectual property rights to popular games, they said. the four springs.
Moreover, with Beijing strictly limiting game approvals in the country and still suspending game approvals of foreign IPs, Tencent is forced to move towards taking over foreign game companies and their IPs, the four said. sources.
In September, Tencent increased its stake in Ubisoft in a deal that made the Chinese company the largest shareholder in France’s top game developer, with an 11% stake that can be further increased to 17%. .
REGIONAL HUB
The deal with Ubisoft comes just after deep-pocketed Tencent acquired Copenhagen-based Sybo Games, the developer of the hit mobile game Subway Surfer, in June and in August took a 16.25% stake in FromSoftware, the Japanese developer of Elden Ring.
Last year, Tencent said it would buy British video game developer Sumo in a $1.3 billion deal – one of its biggest overseas deals since the regulatory crackdown from the end of 2020.
In Europe, with the exception of its purchase of a majority stake in “Clash of Clans” mobile game maker Supercell for $8.6 billion in 2016, Tencent has for years mostly made minority deals, including its purchase 9% of British gaming company Frontier Developments.
Elsewhere, Tencent is also looking to increase investment and make deeper inroads into Southeast Asia, as it sees the region – home to 650 million people – as having the potential to replicate the success of the internet boom in China, said two of the sources.
China’s largest social media company already has a Southeast Asia regional hub in Singapore, home to its international game publishing business.
Since last year, the company has repeatedly emphasized that it aims to have half of its gaming revenue come from outside of China, up from around 25% currently. To do this, in December it launched a new publishing brand called Level Infinite Singapore. (Reporting by Julie Zhu and Josh Ye; editing by Sumeet Chatterjee and Kim Coghill)