Pachter: ‘King deal is a refreshing move by Activision’

Games industry analyst Michael Pachter has praised Activison Blizzard’s purchase of King as a solid strategy for breaking into the mobile market.

The major acquisition was revealed earlier today, and will finalise in Spring of next year.

The deal is a good one if you believe that King has a sustainable business, and a terrible one if you think Candy Crush is a fad,” Pachter told MCV.

I’m in the former camp; I think that King is a real company with a solid market position – as proved by its 350 million monthly active users.”

The Wedbush Securities research analystalso commented on the much-discussed price of the deal, which will see Activision spend $5.9 billion for the Candy Crush giant.

Activision is paying around seven times its operating cash flow, so it’s a cheap deal for them if the cash flow is sustainable,” he explained.

Also, Activision is using overseas deposits, which would have unfavorable tax consequences if repatriated to the US.

The deal is not as expensive as reported, given that King likely has around $900 million of cash on its balance sheet, so it will cost Activision around $5 billion net, and will require around $1.5 billion of incremental borrowing to get the deal done.That debt can be repaid in around one year, so not particularly burdensome.”

Continuing, Pachter commended Activision Blizzard’s use of the buyout to strengthen its presence on mobile by instantly taking hold of new IP on the platform, rather than creating new franchises from scratch.

It’s refreshing that Activision didn’t try to build a mobile business, and acknowledges that it can buy someone very good instead of building the business itself,” he said.

I see some synergy between Activision’s IP and King’s know-how and current customer base, and expect some cross pollination of IP going forward.”

Fellow analyst Piers Harding-Rolls previously said the acquisition would help deflect shareholder concerns should Activision’s Call of Duty or Skylanders brands decline, adding that the King deal was potentially shortsighted.