Zynga founder Pincus cashes in on acquisition after 15 years navigating boom-bust cycle

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  • With Take-Two Interactive’s agreement to buy Zynga, Mark Pincus is set to pocket approximately $193 million, and Take-Two is set to receive another $350 million in equity.
  • The acquisition price, a hefty premium while Zynga was trading, is still well below the company’s 2011 IPO price.
  • “Ultimately, it is a games company and has been bought as a game company,” said Paul Martino, an early investor and managing partner at Bullpen Capital.

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In the 15 years after starting Zynga as a poker game for Facebook, Mark Pincus twice stepped down as CEO while guiding his gaming company through Rocket Ship development, a historically disappointing post-IPO A choppy history of vibe and valuable acquisitions.

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But the one thing he never did was dump the majority of his stock.

Pincus is in line to become the largest individual beneficiary after Take-Two Interactive announced its acquisition of Zynga for $12.7 billion on Monday, thanks to his continuing ownership of about 5% of the company’s outstanding shares.

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According to Latest SEC FilingsPincus holds 55 million shares of Zynga. With Take-Two agreeing to buy Zynga for $3.50 per share in cash and $6.36 per share, Pincus is set to pocket about $193 million, while still remaining around $350 million. Take-Two Equity owns.

Take-Two’s purchase price equates to a premium of 64% to Zynga’s closing price on Friday, adding to a massive increase in Pincus’ net worth.

Still, the story should not have unfolded that way.

before this IPO in 2011, Zynga was just about the hottest tickets to Silicon Valley. Its flagship game, FarmVille, was printing cash as consumers spent real money building the digital world and crafting their avatars. In first three quarters of 2011, revenue increased to approximately $830 million, more than seven times the full-year revenue in 2009. Farmville accounted for 27% of sales.

Paul Martino, a venture investor who backed the game developer in its first financing round in 2007, said that, between 2008 and 2011, Zynga received more rubbish than any other company in Silicon Valley. Notably, during the financial crisis, venture capitalists weren’t putting much money into anything, but Zynga was still raising cash.

Moving into the IPO, Kleiner Perkins was so bullish on Zynga that in early 2011 he increased his stake by buying shares for $14, valuing the company at $12 billion. The stock started at $10, below that, and crossed $14 a few times in early 2012.

But Zynga’s early growth relied entirely on Facebook – the company’s games spread virally, using the social network for distribution. When Facebook began to exert more control over the platform, it limited third-party developers from promoting its services, highlighting Zynga’s major weakness. Between 2012 and 2014, Zynga’s revenue fell in half.

The stock lost 75% of its value in 2012 and never fully recovered.

“Once it became such a huge success out of the gate, there was a belief that Zynga could be much more than just being a games company,” said Martino, a managing partner. Bullpen Capital, “But ultimately, it’s a game company and it was bought as a game company.”

Martino acknowledged that the stock’s performance was disappointing. Even with the higher premium Take-Two is paying, it’s still less than the IPO price.

“But if you told us in 2007 that the company would be bought for $12-$13 billion, I would imagine we’d probably be pretty happy about that,” he said.

A major stock sale at Pincus just happened at the right time for him, and attracted the ire of other investors. In April 2012, as part of a secondary offering, Pincus sells for $192 million Shares worth $12 a share, which is about 15% of their total holding. Many shareholders were still post IPO lockup at that time and did not have that option.

There were other insiders selling Pincus and the offering. sued by shareholders, who claimed they had “heavy losses on their investments,” while those at the top were able to sell before the decline. Zynga finally Settled for $23 million.

Know when to wear

From that point until the end of 2018, Pincus held on to its remaining shares. According to a representative for Pincus, he sold shares worth about $70 million between 2018 and 2021 to fund estate planning for his children. other important only change in ownership Was in relation to their 2017 divorce.

Holding was a tempting decision, even as the company faced turmoil and uncertainty.

Pincus stepped up Down as CEO in 2013, when Zynga named Don Mattrick, the owner of Microsoft’s Xbox business, as its successor. Pincus remained as President and assumed the role of Chief Product Officer.

Two years after that announcement, Pincus reclaimed the CEO position, a move banned by Wall Street — the stock fell 18%. Here’s what Michael Pachter, an analyst at Wedbush Securities, wrote in a report following that announcement:

“Mr. Pincus has a spotty record with investors. Given the struggles in the later part of his last term as CEO of Zynga, we believe the lack of investor confidence in Zynga shares There has been a significant drop in after-market trading.”

Less than a year after his return, Pincus Then left the job of CEO, this time handing over the reins to Frank Gibeau, an executive at Electronic Arts. Pincus remained president.

The stock has climbed 300%, including Monday’s rally on news of the take-two deal.

“One of the most difficult challenges for any company is a successful partnership between its founder and CEO,” Pincus wrote, blog post after the announcement. “In these last 6 years I’ve been lucky to have met with Frank Gibeau. He’s taught me a lot about management at large. Frank and I have always said we agree 80% of the time, and others 20% have led to some of our best insights.”

Through acquiring developers of popular titles such as Words With Friends, CSR Racing and Toy Blast, Zynga was able to reinvent itself by moving beyond social games like FarmVille.

But Pincus, who is now a managing partner at the investment firm reinvent capital, never giving up on his love for the thing that started him: poker.

Before the outbreak of COVID-19, Pincus held Zynga poker nights at his home, set up several Texas Hold’em tables and treated his guests to catered meals. Martino said he last attended a poker night at Pincus’ home in early 2020.

“He’s done that for years,” Martino said. “He does a great job. It’s a good group of investors and early, early employees.”

Watch: Take-Two’s $12.7 billion deal to buy Zynga makes sense

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