In last week’s article, we touched on the great pandemic puppy boom of 2020 and the downstream impact that consumer hoarding during the early stage of lockdowns had on the Consumer – Pet products and services sector. This week we continue our analysis of the Four Consumer Horsemen of the Pandemic: canned goods, toilet paper, gaming & entertainment, and dogs; by taking a look at the rapidly evolving gaming & entertainment sector.

Lockdowns have yet to smite traditional cable, but they certainly have elevated streaming as the de facto standard of entertainment. According to Nielsen, Americans went from streaming television an average of 81.7 billion minutes per week in Q2 2019 to 142.5 billion minutes per week in Q2 2020. Add in non-TV streaming from niche providers such as Twitch, which grew from 660 billion minutes watched in 2019 to 1.11 trillion minutes in 2020, and has 461 billion minutes watched year-to-date 2021, and it becomes clear that as the world locked down and we were shuttered in isolation, we turned to on-demand streaming of entertainment from our devices.

Those devices, of course, provide interactive content as well as passive content. At the same time as streaming boomed, the North American gaming market grew 8.5% in 2020, from $36.9 to $40 Billion. But if you were to ask the average person what comes to mind when describing a “gamer”, odds are they would picture an unkept young man, sporting a neckbeard who still lives in his parent’s basement. In the US during 2020 however, according to gaming market data provider Newzoo, the single largest segment of “gamers” was The Time Filler, comprising 18.6% of all gamers, and they were 64.1% female. Add in the next two largest segments of Subscribers and Lapsed Gamers, the demographics are 54.2% female, 57.7% over the age of 36, and 60.9% Middle or High income.

Despite strong growth and diverse demographics, Private Equity firms have seen their share of deal activity shrink dramatically since the start of 2020. PE buyers accounted for nearly 26% of all deal activity from 2010 onwards, but since the pandemic started, that number has shrank to a total of only two deals while the sector approached record highs for deal activity. A major factor to this decline is likely the blurring of the line between creators and distributors as traditional content creators are launching their own platforms to distribute their content directly to audiences, and distributors are investing in original content.

A look the intermediaries bringing deals to market shows a heavy skew towards industry-specialists rather than bulge brackets driving deal activity, with many of those bankers also working on related TMT deals in adjacent sectors. Competition in both sectors from well-known game publishers such as Epic Games, Niantic and Zynga as well as traditional media heavyweights such as Comcast and Sony, may have squeezed PE firms out of the market as buyers for the time being. That said, several recent high-profile setbacks, such as Amazon Game Studios cancelling their planned Lord of the Rings MMO to partner with its upcoming TV show, and Netflix’s recent disappointing Q1 subscriber growth, show that strategics do not have a stranglehold on this space. Sponsors looking to establish themselves in this high-growth niche could do worse than to make their introductions now to establish rapport, look for ways to add value, and discuss relevant future mandates.

Last week’s deals today

April 18  – April 24
~149 deals traded

Deal of the week

RA Outdoors LLC (dba Aspira), a Dallas-based provider of software for the outdoor recreation industry, was acquired by Alpine Investors. Liontree LLC acted as the sell-side financial advisor.

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