Just a few days after the original rumor, Electronic Arts (EA) confirmed yesterday that it is indeed getting a $55 billion buyout from a Consortium of investors that includes PIF, Saudi Arabia's sovereign investment fund, Silver Lake (an American global private equity firm), and Affinity Partners, an American investment firm founded in 2021 by Jared Kushner, the son-in-law of current United States president Donald Trump.
Now that the dust has started to settle, though, the first reports from reputable sources suggest that there might be massive layoffs on the way at EA, and it's not just history suggesting that after what happened with Microsoft and Activision Blizzard. According to a paywalled report published by the Financial Times, the investors from the aforementioned Consortium are planning to use the latest AI advancements to cut EA's operating costs and manage its substantial debt, suggesting a potential shift towards incorporating AI in games and therefore reducing manpower, both when it comes to development teams and acting talent.
Speaking about that debt, Bloomberg's report reveals that this deal is partly funded by $20 billion in debt sourced by JPMorgan Chase & Co. This is the most significant debt commitment ever registered for a buyout. Moreover, according to a LinkedIn post from Bloomberg's Schreier, they will be put on the books of EA:
That will mean a significant amount of cost-cutting. I would expect mass layoffs, more aggressive monetization, and many other measures. The interest alone could amount to hundreds of millions of dollars per year. For context: this is nearly four times as much debt as the Toys R Us LBO, and I think everyone knows how that went.
This is very worrying, especially for EA employees. One studio that might be targeted in case of mandated cost-cutting measures is BioWare, which did not deliver a financially successful game with Dragon Age: The Veilguard. The Canadian developer already suffered some layoffs and, last we heard, had fewer than a hundred employees left. Hopefully, they will get one last chance with the next Mass Effect game.
Former CEO and co-founder of analyst firm SuperData, Joost van Dreunen, also chimed in on the massive $55 billion deal, the second biggest in gaming history (after Microsoft's acquisition of Activision Blizzard) and the biggest buyout of all time, topping the $48.4 billion buyout of TXU Energy in 2007. In his SuperJoost Playlist Substack newsletter, the games analyst focused specifically on PIF. The Saudi Arabian private investment fund already owned roughly 10% of EA's shares, which made their part of the transaction less onerous. Even so, the analyst says their strategy is to 'throw staggering amounts of money at establishing market dominance', and given that they have nearly infinite investment resources, it may well succeed.
Van Dreunen also posits that private companies are generally better insulated than public companies when it comes to market pressure, so the new owners of Electronic Arts could technically forego short-term profits in favor of the long-term view. However, PIF is not the only one in the Consortium - Silver Lake and Affinity Partners may hold a different mindset.
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