It’s Official: Electronic Arts buys PopCap Games

Chalk this up as a rumor that turned out to be true. Electronic Arts has acquired PopCap Games for $650 million in cash plus $100 million in stock.

This is less than the $1 billion that was initially reported, but there is an earn-out.

According to TechCrunch, the earn-out scale is rather huge. If PopCap earnings are $91 million or less within a 2 year period, PopCap does not make anymore money. If earnings end up being $343 million or more, PopCap makes an additional $500 million, making the total acquisition price $1.3 billion!

It’s wise for Electronic Arts to put this incentive in the contract, because Electronic Arts has a history of buying companies whose founders leave the first moment the opportunity arises.

Given how hit-driven PopCap’s business is (my guess is that 80% of their revenues can be attributed to two games, you can guess which ones), it’s key for Electronic Arts to keep the talent working and happy or this deal will be a failure on day one.

What Electronic Arts gets out of this deal are strong casual game franchises and PopCap’s brilliant ability to take a game and make it successful on every platform and device it is released. Aside from Rovio’s Angry Birds, no game has been as successful on so many devices as Bejeweled.

Also, PopCap has invested a lot of time and money in expanding to Asia and the fruits of their investment are starting to pop up. This is the most interesting part of the deal for me. Electronic Arts has a history of screwing up its operations in the Asian markets. As Asian game companies encroach on Electronic Arts’ North American business (Nexon, Shanda, etc), this purchase allows Electronic Arts to actually be successful in Asia (though it’s still very early).

What does PopCap get out of this deal? Well, $1 billion without the pain of going public.

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