In a shocking development, Electronic Arts announced on September 29 that it will go private as part of a $55 billion leveraged buyout. Saudi Arabia’s Public Investment Fund, Jared Kushner’s Affinity Partners, and private equity company Silver Lake are taking 100% ownership of the company behind franchises like Battlefield, Mass Effect, Madden, and many others.
Industries tend to consolidate over time as they mature, and EA going private is just the latest example of such a move in the video game space. Prior to this, Microsoft bought Activision Blizzard, Take-Two acquired Zynga, Sony purchased Bungie, and the list goes on from there.
There are a number of particulars pertaining to EA’s sale that make it unique, however, and the setup has led to numerous questions from industry-observers about what happens next. No one knows the answers for certain, but here are some of the key things to know and unanswered questions about the EA deal to a private consortium.
First off, what is a leveraged buyout?
EA is going private as part of a leveraged buyout (LBO). What that means in financial parlance is that a company is using mostly borrowed money to finance a deal. Kade Barr of Wedbush Securities told GameSpot that you can think of it like taking out a loan to buy something expensive, but it’s not you who is on the hook to pay it back. Instead, the company being acquired–in this case EA–will use its own earnings and assets to make the debt repayments.
$20 billion in debt
The terms of the EA deal revealed in regulatory filings show that EA is on the hook for $20 billion in debt financing–and that’s a lot. In fact, it’s the largest-ever private equity LBO buyout for any industry of all time. The previous record was established in 2007 when a private equity consortium paid $32 billion to buy the Texas utility company TXU.
Barr said EA has a solid cash flow of about $2 billion per year, and that cash will be used to pay down the debt and service the interest. Barr also suggested that the PIF may look to “enhance EA’s mobile business” to help reach the goal.
Saudi Arabia’s humanitarian concerns
The kingdom’s PIF has attracted significant controversy in part due to its chairman, Crown Prince Mohammed bin Salman. One of the most powerful people in Saudi Arabia and the de facto ruler of the kingdom, he’s now widely considered to be responsible for the assassination of journalist Jamal Khashoggi in 2018. The kingdom has been accused of a wide range of human rights violations, as well.
Saudi Arabia, through acquisitions made via the PIF, has been attempting to diversify beyond oil for years and change the image of the country globally. The fund also owns LIV Golf, the professional golf tour that paid top talent hundreds of millions of dollars to leave the PGA Tour. That move was criticized by some as “sportswashing”–a term for attempting to improve one’s reputation to divert attention from serious humanitarian issues–and people are saying the same thing about Saudi Arabia’s investments into gaming and other sectors. The PIF also made significant inroads with acquisitions and investments in the Premier League and professional tennis.
As a result, Saudi Arabia’s involvement in the EA deal is raising eyebrows in a way that might not be the case with a different potential buyer.
Are layoffs coming?
When the $20 billion debt detail was divulged in the announcement of the sale, people quickly worried about EA looking to enact an aggressive cost-cutting program. It remains to be seen if that will happen, but Barr said EA may look to “cut costs” in general following the deal closing (assuming it clears regulatory hurdles–more on that later).
Barr also suggested that EA may look to sell off some of its assets to help bring in money, though it remains to be seen what EA might look to sell, if anything, or who the buyers would be. “I think EA has a strong enough cash flow to service the debt especially if the PIF can aid the company in enhancing some of its floundering operations,” Barr said.
Barr added that the PIF may look to drive more revenue by juicing up the mobile business, fueled in part by the Kingdom’s previous acquisitions of Scopely and Niantic’s gaming division. “There will likely be a value unlock through the leveraging of Scopely and Niantic. Ultimate Team could see changes as well. The game could be provided for free, resulting in a larger player base and likely higher revenue than locking that game mode behind a paywall,” Barr said.
A filing specifically addresses the possibility of layoffs, with one of the questions in a FAQ stating, “Will private ownership lead to layoffs?” The answer was, “There will be no immediate changes to your job, team, or daily work, as a result of this transaction.” It added that the investor consortium buying EA is “supportive of and committed to investing in our exceptional employees and strong culture,” noting that there will continue to be opportunities for career growth and advancement going forward. It makes sense that there would be “no immediate changes” to jobs at EA right now given that the deal has not closed and the proposed new ownership consortium is not in charge yet. This doesn’t preclude layoffs–which are commonplace with acquisitions–from happening in the future, nor does it mean EA won’t hire more people, too.
Piers Harding-Rolls of Ampere Analysis said EA may look to “cut excess spending and rationalize the company’s workforce” to help bring in more money to address the debt. A report from Financial Times said EA might look to further bolster AI tools and technologies to help cut development costs and drive profitability. To be sure, EA had said it was already doing this, as are other companies who are embracing AI in an attempt to reduce costs.
“Ampere believes AI’s impact on game development is set to escalate, but how this impacts staffing and time to market for AAA games remains to be seen,” Harding-Rolls said.
Harding-Rolls added that he expects some EA developers to quit immediately due to “cultural differences” between EA’s staff based in the West and the Saudi ownership. The PIF has attracted significant controversy over Saudi Arabia’s wide range of human rights violations over the years, and this has been an ongoing talking point in many conversations pertaining to PIF.
History suggests some amount of downsizing may come, as there are countless examples of blockbuster acquisitions leading to layoffs over time. Microsoft is a recent example of this, as the company laid off thousands of people following its buyout of Activision Blizzard. No two acquisitions are exactly the same, and in that case, Microsoft said there were overlapping roles.
Mat Piscatella of Circana told GI.biz that no one can say for sure what happens next for EA, but history may not be on EA’s side. “Leveraged buyouts have a certain history that generally hasn’t been great for the acquired companies,” he said.
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Concerns at BioWare
A report from Insider Gaming cited multiple anonymous sources within BioWare stating they believe BioWare could be one of the first companies to see cuts under the new ownership.
“I’ve been doing it since last year, but I’m making sure I have a portfolio ready and feelers out for other jobs,” a current BioWare developer said. “Kind of feels like a matter of time.”
BioWare may be skating on thin ice already, as 2024’s Dragon Age: The Veilguard failed to reach sales targets. The company’s current project is the next Mass Effect game, and a source at BioWare said, “We’re going to keep working until they tell us we’re done.” They added: “It’s not the healthiest way to live, but as long as the paychecks keep coming, we’re not going to just walk away.”
BioWare is known, in part, for making pro-diversity games featuring inclusive storytelling and characters. Longtime BioWare writer Patrick Weekes, who was laid off earlier this year, speculated that EA’s new owners, including the PIF, might want to avoid “gay stuff” and politics that the PIF’s leadership does not agree with. Weekes theorized that EA might straight-up close or otherwise get rid of BioWare to avoid any concerns, should the deal materialize.
The recently held Riyadh Comedy Festival in Saudi Arabia generated a lot of debate and discussion online, in part for the reported restrictions on what the comedians could say pertaining to Saudi Arabia. Participant Bill Burr said this was overblown, but admitted that the organizers did ask the comedians to not joke about the kingdom’s royal family or certain religious topics. It remains to be seen what mandates, if any, PIF could enforce at EA with regards to content for games if the deal goes through. Also worth mentioning is that PIF is one of three partners in the investor consortium looking to buy EA, alongside Silver Lake and Affinity Partners, and it remains to be seen how decisions will be made by the three companies.
PIF could be a “hands-off” owner
The PIF, through its Savvy Games label, acquired Scopely for $4.9 billion in 2023, and Barr noted that the company “experienced no relocation or mass layoffs” from the buyout. “The PIF appears to be a relatively hands-off owner of the assets it acquires,” Barr said. Following that deal, Scopely opened a new studio in Riyadh.
“Scopely has performed exceptionally since it was acquired by Savvy, granted Monopoly Go! is a large contributor to that success. I think the EU will likely request some concessions around data privacy and job protections, further protecting EA’s workforce. It’s unlikely we will see any major changes in the first couple years of acquisition,” Barr said.
One area where the PIF may be more hands on with EA if the deal closes is around EA’s mobile business. Harding-Rolls said he believes EA’s mobile-game business today is “relatively underdeveloped” compared to PC and console, and PIF’s expertise in the space by way of its buyouts of Scopely and the gaming division of Niantic could materially bring in more revenue and profit.
“A more diversified strategy could offset some of the huge investments being made in AAA gaming and drive broader value from the same IP investments,” he said.
A “step change” for the PIF
Saudi Arabia’s PIF has been buying up or investing in gaming companies for years already to the tune of billions, but the deal for EA is a “step change in commitment,” Harding-Rolls said. “The acquisition adds a top 10 games publisher to the portfolio and a large collection of brands and franchises,” he explained.
Buying EA may not be a strict profit play, either, Harding-Rolls said. Saudi Arabia, as noted above, has been looking to diversify beyond oil and change its image.
“EA also fits into the PIF’s strategy of accumulating soft power through entertainment and sports, and, because of this, the value EA offers Saudi Arabia cannot simply be measured by the company’s financial performance,” Harding-Rolls said. “EA’s sports games business and its sponsorship of multiple football/soccer leagues globally, means it is a perfect vehicle for raising the profile of the country across the areas of sports, games and esports.”
Saudi Arabia previously outlined a “Vision 2030” plan to make Saudi Arabia a top destination for gaming by the end of the decade. Harding-Rolls said the acquisition of EA helps to accelerate the Kingdom’s goal of making a domestic games industry. The research firm said EA may look to open a studio within Saudi Arabia as part of the deal.
A deal of this size is sure to have knock-on effects in the video game industry. Harding-Rolls said one of them is that the PIF is playing a bigger and bigger role in gaming globally, with more acquisitions from PIF likely to come.
“While Asian publishers, and in particular Tencent, NetEase and Krafton, have had free [rein] in recent times to acquire a large number of games companies, Saudi Arabia’s commitment shifts the dynamic of the global order of the industry,” Harding-Rolls said.
Not a done deal yet
To be sure, what was announced on September 29 was only the proposed deal. The actual transaction is not finalized and is subject to government scrutiny in the US and beyond. That being said, EA said it expects the deal to close in Q1 FY27. The deal closing is subject to “customary closing conditions,” including regulatory approval and a sign-off by EA stockholders. Should the deal close, EA’s stock will be removed from public markets. The deal is also subject to certain termination fees of more than $1 billion.
Harding-Rolls said the deal will be scrutinized by the United States’ Committee on Foreign Investment, but he said the deal should go through without any major issues due in part to how US President Donald Trump’s own son-in-law, Kushner, is involved via Affinity Partners.
Further obfuscation of key data points
Video game companies are known to keep secrets about player data, sales, and other key performance indications, and hold back information for the purposes of competitive concerns. With EA set to go private if the deal closes, that could lead to a “knock-on impact on performance transparency for one of the biggest game publishers globally.” Assuming the deal closes, EA’s stock will be removed from global indexes and the company won’t be required to release quarterly reports, thus keeping important data that was once publicly available behind closed doors.
“I’d be really excited,” former EA dev says of going private
Fiona Sperry was the top boss at EA’s Criterion Games and is now the CEO of Three Fields Entertainment. She said in an interview with GI.biz that, “I’d be really excited about the opportunity that going private would entail.” Publicly traded companies answer to their shareholders and are known to push games out the door to meet a quarterly earnings deadline. In a private setup, a company like EA could–in theory–change how it releases games.
“However experienced you are, the reality of game development means that you’re often having to compromise your game to hit a date–a date you most often had to commit to long before you’ve finalized the design,” she said. “You have to design to the date rather than the other way round. And it’s really hard to do that when you’re trying to innovate.”
“EA has amazing creative teams and hopefully this will give them the chance to really utilise that creativity and take some risks. Don’t get me wrong–dates are important for focusing everyone–but sometimes you just need more time,” she added.
Harding-Rolls said if EA does indeed go private, the company would no longer be beholden to the market at large and subject to everything that comes with being a publicly traded company. This, in turn, could allow EA to focus less on meeting quarterly financial targets and more on “long-term strategies and investments.” Of course, the investor consortium acquiring EA will surely have its own performance targets and demands that EA meets–not to mention the aforementioned debt to address–though the setup won’t be the same as when a company is available on the open market.
Could another company swoop in to buy EA?
As noted, the investor consortium’s deal to acquire EA is not complete and remains subject to regulatory approval and approval by EA’s stockholders. Another company, in theory, could still come to EA with a bid. However, Harding-Rolls doesn’t give that much of a chance.
“The chances of EA being acquired or merging with another major games company became less likely as conditions for this size of deal deteriorated over the last two years. The PIF is probably the only candidate that could effectively fund this deal and it helped that it already had a 10% stake in the company. For EA shareholders this represents a very good deal considering the industry backdrop,” he said. To that end, EA shareholders would receive $210 per share if the deal closes, representing a significant premium for anyone who has owned and held.
Read the full merger agreement
If you’re a sicko like me, you may want to read the entire merger agreement for yourself. Thankfully, a number of documents are available on the SEC’s website, including the 80-page merger agreement document that outlines all the key particulars of the proposed sale.
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