M&A activity in games sector will continue - Merel

Mergers and acquisitions in the video game sector are set to continue, although the high valuations for mobile and online companies may have peaked, according to investment bank Digi-Capital.

But managing director Tim Merel suggested investors are more cautious of the sector following high valuation deals such as EA's $300 million Playfish buy and Disney's acquisition of Playdom for over $700 million.

"The market is accelerating both in terms of investment and mergers and acquisitions," said Merel, speaking at GamesInvest today. "We don't expect that trend to stop."

"In terms of valuations that's a different question. Our broad view is that we think valuations will stay frothy for the next twelve months. Beyond that we're not quite sure and that has nothing to do with the macro economic environment. It's more to do with the headline-making deals that happened in the last few years. Some of those deals will pay off and some of them won't."

Earlier this year investors took Disney to task for the Playdom acquisition, after its games division revealed six month losses of over $128 million.

"Disney got completely beaten up the analysts and if you read between the lines of what they were saying it was 'we don't think you're making enough profit from games, we think you over paid, why are you in games anyway?'," continued Merel.

"We think a number of CEOs of public companies will get beaten up, it will hit the share price and they'll stop being brave with deals and that will trickle down. So from a valuation perspective it's probably not going to get stronger than it is right now."