Chinese PE firms buy Israeli mobile games unit for $4.4bn

Hony Capital, Yunfeng Capital, and CDH Investments have joined a consortium of investors looking to cash in on China’s fast-growing $8bn mobile gaming industry.

Hony Capital, Yunfeng Capital, and CDH Investments have joined a consortium of investors to acquire Israel-based mobile gaming company Playtika from Caesars Interactive Entertainment for $4.4 billion, as China’s private equity firms look to cash in on the nation’s fast-growing mobile gaming industry.

The all-cash deal, which is expected to close in the third or fourth quarter of 2016, is led by Chinese online games company Shanghai Giant Network Technology. Other investors include China Oceanwide Holdings Group and China Minsheng Trust Company, the investors said in a statement.

Beijing-based Hony Capital, which raised a $2.7 billion dual-currency fund in April this year, typically invests in healthcare, machinery, financial services, and consumer products businesses in China. Yunfeng Capital, a private equity firm founded by Alibaba founder Jack Ma and based in Shanghai, specialises in early stage and venture investments, while CDH, headquartered in Hong Kong, seeks tech-focused investments in China.

A spokesperson for Hony declined to comment on the deal. CDH and Yunfeng could not be reached for comment.

Herzliya, Israel-based Playtika develops casino gaming apps, such as slot machine game Slotomania, Bingo Blitz, and World Series of Poker. Playtika says that its customers add up to more than 6 million people across 190 countries, who play its games in 12 languages, and on more than 10 platforms. 

Playtika’s games are played for virtual currency rather than actual currency and cannot be exchanged for real money, except for World Series of Poker (WSOP), which offers real money gaming in New Jersey and Nevada. This will remain the case under the new ownership, the consortium said.

The unit that the consortium bought does not include WSOP, because the Chinese government currently bans all forms of gambling for cash on the mainland except for the state lotteries Welfare Lottery and Sports Lottery, as well as the regulated casinos located in Macau. The same rules apply to online gambling; the Chinese government does not grant licenses to operate such sites in China, which means that those who enjoy betting for cash rewards must use internationally-licensed websites for sports games, in-play betting options, and live casino games.

In addition, the online games unit will remain independently run from Israel, and its existing management team will continue to run day-to-day operations.

Playtika’s private equity buyers are keen to capitalise on trends that show China’s mobile gaming industry is growing rapidly. According to a study from analytics firm DataEye, the mobile gaming segment in China has grown six-fold from 5.4 percent in 2012 to as much as 36.6 percent in 2015, accounting for about 40 percent or roughly $7.96 billion in total revenues in China’s gaming industry.

Some firms who have recently paid huge sums for smartphone games include Chinese tech giant Tencent, which bought Clash of Clans developer Supercell for $8.6 billion, and Santa Monica-based Activision Blizzard, which bought Candy Crush maker King Digital Entertainment for $5.9 billion.

According to a report by Ken Research, China’s casino and gambling industry will exceed $336 billion by 2019 due to the increase in foreign tourists, the rise in disposable incomes, and the expectation of more relaxed government regulations in the future.