Gaming stocks recovered during the second quarter of 2025 and M&A activity rose in tandem, but game investments continued to lag, according to a report by Drake Star Partners.
The report in the Drake Star Gaming Index validates other independent data from Aream & Co., which reported Q2 data yesterday. Here’s a comparison to Q1.
The Drake Star Gaming Index, consisting of 35 large public gaming companies, rose 28% in the first half of 2025, far outpacing the S&P 500, which only gained 5%.
Drake Star anticipates a new wave of M&A activity through the rest of 2025 and into
2026, as gaming companies aim to capitalize on their strengthened equity valuations to pursue inorganic growth. Of course, this analysis could change if the economy heads south amid trade frictions and consumers pull back on spending.
For M&A, this quarter also featured one of the largest and most successful exits for gaming VCs with CVC’s significant minority investment in Dream Games as part of a $2.5 billion deal.
The report said the strongest overall performers were Square Enix, Roblox, and Konami. In Europe, leading stocks included CD Projekt RED, Everplay Group, and MTG, while in the U.S. markets, Roblox, Corsair, and Take-Two stood out as the top performers.
Gaming M&A activity remained relatively stable in Q2’25, with 46 announced deals. The largest transaction was Krafton’s $516 million acquisition of ADK, a Japanese company specializing in advertising and animation with some mobile game development.
Other notable deals included Epic Games acquiring Loci, Apple purchasing RAC7 (a small deal but rare platform company Apple), and PlayVS acquiring Generation Esports and PlayFly College Esports. PC and console gaming continued to lead M&A activity, followed by blockchain gaming, which saw a notable increase in the number of deals.
The second quarter featured one of the largest and most successful exits for gaming VCs with CVC’s significant minority investment in Dream Games. The deal, comprising both equity and debt, totaled about $2.5 billion at a $5 billion valuation. That represented a significant return for Makers Fund, Metzger said.
Why private game investments are dropping
Michael Metzger, partner at Drake Star Partners, said in an interview with GamesBeat that the game investments are lower in part because strategic investors (big companies) are much less active when it comes to private investments.
“They’re much more selective and not doing as much in the U.S. market,” he said.
On top of that, game venture capitalists are also being more cautious. Some of those are in the process of raising new funds and they need to do that before investing more money, he said.
“I would say the investment climate is continues to be very difficult,” he said.
He noted there were 150 investment deals in the first quarter and 110 in the second quarter (valued at $3 billion).
“That’s a significant drop, and I don’t see that necessarily getting much better anytime soon,” Metzger said. “The most important part is the recovery of the public markets. If the valuations increase significantly — and we’ve already seen a big jump this year — then the companies are going to be more aggressive again on the M&A side.”
Overall, the quarter recorded 110 private placements with a combined disclosed deal value of $3 billion, compared to 150 in the prior quarter.
Things weren’t totally dead. Other notable financings included Tencent’s $80 million investment in Arrowhead, Wolves Esports Club raising $28 million from Lvfa Group, AI startup Sett securing $27 million, Turkish mobile studio Bigger Games completing a $25 million Series A, and Hybe IM raising $21 million.
I have to say that so much happened across this past quarter that I couldn’t keep up with it all. The complexity is enough to remind me of Matthew Ball’s big slide deck on the state of gaming.
Drake Star said the most active investors over the past year included Play Ventures, Bitkraft, and Makers Fund among larger funds, while Goodwater, TIRTA, and 1AM Gaming were the leading seed-stage investors. On the strategic side, Krafton, Tencent, and Samsung drove the most activity, while Animoca, Spartan, and Gam3Girl Ventures were the most active players in blockchain gaming.
Meanwhile, in the public markets, Take-Two Interactive announced a proposed $1 billion public stock offering, with an option to sell an additional $150 million, while GameStop announced a debt raise of over $2 billion. Embracer plans to spin off Coffee Stain Group and Discord is in late-stage discussions with banks for a potential initial public offering (IPO). Metzger said he expects that to take place in 2026.
Outlook
Following the strong rebound of public gaming equities in the first half of 2025, Drake Star expects a new wave of M&A activity throughout the remainder of 2025 and 2026, as gaming companies look to leverage their higher equity valuations for inorganic growth.
Additionally, IPO activity is likely to pick up, supported by the broader market recovery.
Private equity participation in the gaming ecosystem is expected to remain very active, with some publicly traded gaming companies potentially being taken private and PE firms taking growth equity positions in large private gaming companies.
Key growth segments are expected to include AI and tech platforms. Later stage financings will likely continue to be challenging.
Of course, it’s hard to say what direction the market is going, considering Microsoft just laid off 9,100 people, including many game developers. You could say that consolidation has been bad for the employees at companies acquired by Microsoft. So it is a bit unpredictable whether more M&A will lead to more jobs or fewer jobs, in my assessment. It’s hard to assess what is going on as Microsoft did not disclose individual studio actions and we have had to rely on published reports to assess the layoffs in each category.
One industry leader, Raphael Colantonio, founder of Arkane (which is part of Microsoft but he is no longer part of it), said that Microsoft’s Game Pass subscription might be to blame. But Metzger said he is bullish on subscriptions, and sources close to Microsoft indicated that Game Pass is profitable, even withthe loss of first-party revenues.
Nevertheless, if additional exits happen, investors will benefit. Those investors will be flush with cash to put into venture capital funds, which can in turn raise more money and then invest them in the ecosystem, Metzger said.
CVC and Blackstone put money into Dream Games at a $5 billion valuation, essentially buying out existing shareholders. The result was a “massive exit for Makers Fund, as well as several others who invested early, Metzger said. Still, Metzger believes that it won’t get easier to do equity investments, at least through the end of the year.
Still, it’s important to see the occasional big exit, as that increases the confidence of the gaming VCs and helps bring more money into the ecosystem, Metzger said. I thought it was nice to see Theorycraft finally announce the 1.0 launch of its Supervive game, after raising $87.5 million. On the other hand, it was sad to see the failure of MindsEye, the ambitious game from Build A Rocket Boy, which raised at least $110 million.
Regional differences are worth noting. When it comes to public game companies, Asian companies were much stronger in the quarter than Western companies, and PC/console companies were much stronger than mobile game companies, Metzger said.
The traditional Japanese companies continue to be very high in the Drake Star public market index, with strength at Square Enix, Konami, Nintendo, Capcom and Bandai Namco. Square Enix happens to have an activist shareholder buying its stock.
Blockchain games, once a much larger percentage of all fundings, have declined. This quarter, only 26 out of the 110 deals (~23.6%) were in blockchain gaming. Q1 2025 had 42 out of 149 rounds (28%) and 2024 had 250 out of 711 (35%) rounds. So there has been a decline of blockchain investments compared to the total number of financing rounds, and many of the blockchain financing rounds are fairly small.
So much depends on macroeconomic conditions around the world, but those are hard to predict amid wars and trade battles. And at some point, in May of 2026, we’ll finally see the launch of Grand Theft Auto VI, hopefully.
“I would say we’ll continue to see a lot of volatility,” Metzger said. “Grand Theft Auto is a really big one, probably the biggest game ever. That will cause challenges for companies that are planning to launch something in the same time frame.”
