PopCap’s Big Moment: Acquisition or IPO, with Pitfalls and Promise Either Way

Whether it forges ahead with previous hopes for an IPO, or jumps at an acquisition, it’s clear that Seattle-based PopCap Games is unlikely to leave 2011 without being transformed. The question is, which outcome is better for PopCap?

Just a few days ago, the storyline seemed pretty clear. Profitable for years and with few investors to please, PopCap had finally reached $100 million in sales. Now, with the market for technology IPOs coming back to life and competitors like Zynga and Rovio pushing interest in casual games to new heights, leadership told virtually anyone who would listen that it was time to test the waters for a public sale.

Then, as happens frequently amid deal-making, a juicy rumor hit the tech press: TechCrunch, close to the sources of many Silicon Valley deals, reported that PopCap was in talks for a $1 billion-plus buyout from Electronic Arts. PopCap dismissed it as rumor and speculation, but didn’t deny. It could be true, half-right, or just somebody trying to hang a bigger price tag on the company.

So while we wait to see what actually happens, let’s step back and look again at the information at hand.

PopCap has laid out plenty on its own. The company went on a “we might IPO” tour earlier this year, meeting with bankers, analysts, and reporters to lay out selected financial information and talk about the company’s culture and plans for the future.

PopCap’s leaders said that hitting the public market was driven by a desire to ramp up long-term growth plans, not about cashing out. Even just before the rumors of a buyout at a $1 billion price leaked this week, the company’s line was still strongly about doing the thing that would allow it to maintain its vision and pace.

And why not? PopCap has been profitable since its inception, only raising outside financing once, when it took $22.5 million from Meritech Capital Partners and angels in 2009. The company’s revenue growth has been solid, and cash in the door was about $100 million last year.

Of course, that’s the kind of thing every company says. Nobody’s going on a road trip to New York and telling the press that they can’t wait to finally buy a big boat, a Tesla roadster, and a new house on the water. But PopCap is also no trend-of-the-moment startup: The company has built its portfolio methodically, and now has some 400 employees worldwide, with offices on three continents. It has been praised for managing the transition to online and mobile games without going too wild or losing a grip on its franchise titles.

“They had good foresight and have been aggressive in getting into new regions and onto new platforms, I think, ahead of other people on the causal side,” says Billy Pidgeon, a senior analyst at M2 Research. “They really stand head and shoulders apart form the rest of the casual games universe.”

That story seems to argue for a public sale—the executive team and core talent are fairly likely to be happy and stay in place, and although you have to answer to a whole bunch of new bosses, at … Next Page »

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