Dive Brief:

• Nuverse, the gaming unit of technology giant ByteDance, entered an agreement to acquire the Shanghai-based mobile game developer Moonton Technology. The deal is valued at roughly $4 billion, Reuters reported, citing unnamed sources familiar with the matter.
• The move helps ByteDance scale up its fledgling games business to better compete with Tencent, a rival tech conglomerate in China. Reuters sources said Tencent also made a bid for Moonton.
• Moonton is best known for creating the multiplayer game Mobile Legends: Bang Bang. M&A activity in mobile gaming has picked up recently as the pandemic drives a spike in engagement with the category.

Dive Insight:

In nabbing Moonton, ByteDance takes a significant step to expand its foothold in the gaming category. The company has steadily built out Nuverse's offerings, earlier this year launching a dedicated website for the division that spotlights titles like Strike Royale and Blades of the Guardians. Meanwhile, the appetite for mobile games has exploded during the pandemic, resulting in a surge in M&A activity.

ByteDance is best known to Western consumers for owning the popular video-sharing app TikTok and its rough Chinese equivalent Douyin, but the company is clearly looking to broaden its scope to stand head-to-head with Tencent, which has a larger stake in gaming. Moonton will continue to operate independently from ByteDance after the transaction closes, a source told Reuters.

Games present a sizable revenue opportunity for ByteDance, which has turned TikTok into a favorite app among U.S. consumers and subsequently a magnet for brand marketers. Mobile games were forecast to command around $86.3 billion in revenue last year, according to Newzoo estimates, a windfall bolstered by the pandemic. Mobile gaming has experienced 28% audience growth since the start of the health crisis, per recent Facebook research, and many newcomers are receptive to ad-supported offerings. Companies that facilitate advertising services for app-based game developers have also seen their valuation shoot up as the sector pushes for more monetization.

The reportedly multibillion dollar acquisition for Moonton is just the latest to shake up the mobile games space. Electronic Arts, which historically publishes games on hardware consoles like Sony's PlayStation and Microsoft's Xbox, in February acquired the mobile games developer Glu Mobile for $2.4 billion. The deal for the studio behind Kim Kardashian: Hollywood is expected to effectively double the size of EA's mobile business, executives have said.

Zynga, one of the largest players in the mobile games industry, last year bought hypercasual gamemakers Rollic and Peak for $180 million and $1.8 billion, respectively. Chief executive Frank Gibeau recently told TechCrunch that Zynga was still on the hunt for acquisitions — another indication the wave of mobile games consolidation is far from over.