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Zynga Swipes NaturalMotion For $527M

NEW YORK (The Deal) -- San Francisco games developer Zynga (ZNGA - Get Report) said late Thursday it will buy mobile games specialist NaturalMotion for about $527 million in cash and stock.

Zynga, whose stock has fallen by more than half in the two years since its initial public offering, disclosed the acquisition as it announced a 43% decrease in fourth-quarter revenue and said it would cut 15% of its own workforce, or about 314 jobs.

The acquisition provides an exit for the Oxford, England-based target's backers, which include Balderton Capital, the leading shareholder with a 24% stake; Balderton's former U.S. sister company, Benchmark Capital, and Oxford University.

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NaturalMotion was founded in 2001 and is 8% owned by CEO Torsten Reil, a former Oxford University student who began by designing 3D software to power third-party games and movies before starting to develop games of his own.

Zynga said the purchase expands its lines into people and racing simulation, brings to its portfolio hit titles, including CSR Racing and Clumsy Ninja and increases its presence in the mobile games market.

"We believe that bringing Zynga and NaturalMotion together is the right step at the right time," said Zynga CEO Don Mattrick in a statement. "Our acquisition of NaturalMotion will allow us to significantly expand our creative pipeline, accelerate our mobile growth and bring next-generation technology and tools to Zynga that we believe will fast track our ability to deliver more hit games."

The buyer said NaturalMotion will boost its own adjusted Ebitda by $15 million, to $25 million, excluding transaction-related expenses in 2014. It didn't disclose financial information for NaturalMotion, other than to say it had 2013 bookings - a measure of revenue in the games sector - of $62 million. Zynga said it expects NaturalMotion to contribute $70 million to $80 million in bookings in 2014 after the expected February close of the transaction. Zynga's own 2013 bookings were $716.2 million.

The price breaks down into $391 million in cash and about 39.8 million shares of Zynga Class A shares. NaturalMotion employees who stay will receive about 11.6 million of the shares over a three-year period.

Balderton Capital declined to disclose its returns on the sale. It has been a NaturalMotion investor since 2006.

Zynga on Thursday said it had fourth-quarter revenue of $176.4 million. Its net loss narrowed to $25 million from $49 million. It also said it expects first-quarter revenue of $155 million to $165 million and a net loss of $49 million to $56 million, including a restructuring charge of about $15 million to $17 million. The job cuts announced Thursday come on top of about 520 layoffs last year, which cut Zynga's workforce by 18%.

The NaturalMotion acquisition will add 260 employees.

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