Mobile and digital gaming portfolio update

Mercia Asset Management PLC is pleased to provide an update on its investments in the mobile and digital gaming sector.

As at 30 September 2022, mobile and digital gaming investments accounted for c.33% of Mercia’s direct investment portfolio by value. Mercia also invests in a number of gaming businesses through its managed funds.

This is an important sector for Mercia with most of the c.2,200 game development studios in the UK being SMEs, making them a natural fit for Mercia’s investment criteria and sector expertise. The UK has a strong commercial track record of producing innovative, fast growing and globally successful gaming studios. The sector employs over 47,000 people directly and indirectly, while the UK’s tax relief for video game development has helped attract significant investment in the sector. The global gaming market was valued at $184.4billion in 2022 and is forecast to grow by 5% per annum, reaching $211billion and 3.6billion players by 2025*.

*Deloitte Video Game Market; Market update Q1 2023

Direct Portfolio update

nDreams Limited (“nDreams”) – 33.2% fully diluted direct investment

nDreams, a virtual reality (“VR”) game developer and publisher, is currently Mercia’s largest direct investment by fair value and has established itself as one of the world’s leading VR studios. It has grown its revenues by c.60 % in its financial year ended March 2023 and moved into profitable trading, with over $12million of projects signed so far in 2023.

nDreams is also growing via acquisition, having acquired Brighton-based Near Light Limited, a long-term partner and VR and augmented reality (“AR”) game development studio, in December 2022. Near Light has recently pioneered an AR experience for a leading toy brand.

nDreams now has over 220 staff across four studios and expects to be over 300 staff by the end of 2023. It has a mix of funded and self-funded projects across both original IP and major IPs such as Ghostbusters with Sony Pictures. Its third-party publishing team has had success with its first game, Little Cities, which is averaging over 90% in user ratings and is the most successful city builder on Meta Quest headsets. The team has three third-party games signed, with more to come.

The VR gaming market continues to expand rapidly, underpinning nDreams’ growth objectives, with over 20million Quest headsets sold to date. PlayStation VR2 has launched recently and a number of major brands are currently developing their own headsets.

Virttrade Limited t/a Avid Games Limited (“Avid Games”) – 40.6% fully diluted direct investment and 4.3% fully diluted stake held by Mercia’s managed funds.

Avid Games is a mobile trading card gaming company, and the creator of Cards, The Universe and Everything (“CUE”), giving Mercia exposure to the fast-growing mobile gaming market.

CUE currently has c.250,000 monthly active users across 134 countries and has been installed 2.2million times since initial launch in December 2019 – a strong performance for a new IP title. Comparable titles Hearthstone and Marvel Snap! have reached over 8million and 12million monthly active users, respectively.

In its first year of launch, the game led to a tenfold increase in Avid Games’ revenues and in 2022 growth was over 300%. In 2023, growth is expected to be in the region of 70%. This is an impressive performance in the context of the economic backdrop and a more difficult period for mobile gaming following Apple’s changes to its App Tracking Transparency.

Avid continues to explore new opportunities to develop unique mobile experiences, and Mercia is confident it is well placed to solidify its position as a leading player in the mobile trading card game market.

Invincibles Studio Limited (“Invincibles Studio”) – 39.0% fully diluted direct investment and 7.6% fully diluted stake held by Mercia’s managed funds.

Invincibles Studio, formerly known as Soccer Manager, is one of the world’s best-selling mobile football manager games. The Preston and Leeds-based company recently raised a further £1.0million from Mercia’s third-party funds and Mercia’s own funds to continue to build on the success of its core Soccer Manager game franchise.

Recently the company has concentrated its efforts on improving game authenticity to attract and retain users, with multiple partnerships now in place to use player and team imagery and content, including the gold standard FIFPro license, coupled with licenses from UK and overseas teams and leagues, and with Arsenal manager Mikel Arteta as the ‘face’ of the game. A focus on match engine development has also been successful in attracting an ever-increasing active and sticky user base.

Invincibles Studio games have now been downloaded in 251 Google territories this year, and have 8.8million users, double that of last year. The studio has been able to increase its headcount to over 50 and is currently developing two new related football action games for launch in late 2023 and 2024.

Managed funds update

Mercia also recently achieved two successful mobile and digital gaming exits from its managed funds:

Genba is a global cloud-based platform that bridges the gap between publishers and resellers. It was sold to Azerion, a Netherlands based digital gaming and AdTech business, in May 2021 in a deal that has returned 4.9x our EIS Fund’s cost.

• In early 2023 we completed the sale of Middlesborough based developer Sock Monkey, which was acquired by Canada’s largest video games studio, Behaviour Interactive. The deal provided an exit for Mercia’s Northern Powerhouse Investment Fund, at 3.7x initial investment. Sock Monkey has worked with some of the leading publishers and brands including Sumo Digital, SEGA, and Paradox Interactive, creating games such as Tinykin, Little Orpheus and Kill it with Fire.

Julian Viggars, CIO of Mercia Asset Management PLC, said: “The UK’s gaming sector has established itself as one of our most exciting sectors, experiencing strong growth supported by compelling and secular global tailwinds. The UK already has several leading studios distributing their games worldwide and we expect this number to grow. The continuing success of Mercia’s investments validates our focus on this sector and ability to identify and nurture promising companies.

“While the mobile sector showed a small slowdown in 2022, I am particularly pleased that our two mobile games businesses are both showing outstanding growth through investment in the quality of their content, together with clear user acquisition strategies. We are also seeing significant momentum in the VR market with 2023 promising to be a pivotal year as new hardware is released by a number of leading global tech firms, including most recently Apple’s augmented reality headset. Looking ahead, we will continue to seek out and support gaming companies that demonstrate exceptional potential for growth and value creation. With a keen focus on the regions, Mercia remains committed to fostering innovation, driving economic growth, and delivering strong returns for its investors.”