What has led Babel to being acquired?
Firstly we are not really about acquisition but investment. Two years ago we started doing business with major US clients like Warner Bros. Two things that sprung out of that; The first was that these are serious contracts, that place a number of requirements on us, and they focus you on delivery and quality. These clients demand the highest levels of security, and that requires investment as clients say ‘we want a completely separate lab while you work on this game, with all the latest devkits’. So we realised we need help if we were going to do things properly.
Secondly these are major global companies looking for equally global partners, with the complete delivery capability and the balance sheet to fund the required investment for multiple years.
Also, we’ve been very successful in Europe doing what we do, and starting to be successful in North America. But, like the rest of the industry, we realise the next step is Asia. We already have an Indian office, but we need to be able to expand into Asia without the expansion eating so much management time.
So with this partnership it is like we found a ‘bigger brother’ in Quatrro to help us grow.
Why sell to Quatrro specifically – and not another company?
Quatrro is a big company and can bring a lot of support, infrastructure and process to Babel. The great thing about being the leading games outsourcing company is that you are at the front… and the painful thing about being the leading games outsourcing company is that you are at the front. We’ve had to invent a lot of things and watch others come along after us, watch and follow our lead.
We will now be part of the Quatrro Group. They have offices in India, China, Chicago, San Francisco, Singapore – they have the exact scale we can latch on to. Plus, they’ve sussed how employees around the world need to be supported, such as things like world-wide HR as they already understand the things like employment law that a global company needs.
Quatrro also really ‘gets’ the service side mentality; that is, we don’t make games, we help people make them – and we have to do each job right.
With Quattro we’ve mapped out a grand plan for Babel over the next two years. But to be honest our original plan wasn’t to sell – but we’ve dealt with investors and VCs since the beginning of Babel and they tend to be more wary of second or repeat investments to fund expansion. So what we realised that we needed to move to another level – and it was logical to establish this acquisition relationship with them.
How does Babel fit with Quatrro – will the operations be merged?
Nope. We’ll be a separate company within the group, but we’ll be able to use Quatrro’s resources – HR, infrastructure, offices etc – which you can imagine is great for us.
In total the move gives us deep pockets to move the company to the next stage. It gives us the scale to grow – we just signed a huge deal with a big top-tier publisher, and they wanted to be reassured that we have the financial and operational resources to ensure that we would be there throughout to support them – outsourcing deals now are regularly for years in length, not project by project.
So what is that two-year plan for Babel?
I can tell you a bit. Broadly, with Richard Leinfellner now coming aboard at CEO and Algy moving to a more business development role, the plan is – fairly simplistic – to address the now maturing outsourcing market with new services, both by growing organically and by acquisition.
And then there’s the evolution of existing services like more integrated functionality testing for developers. We have done a lot of work with the ‘super developers’, like Bethesda– studios that really control their IP and post-production. Super Developers, especially the MMO guys, want a partner to test builds at an early alpha stage, and then is part of the process right through to launch.
It’s these studios who have the big IP – the Bioware type companies – they demand their support, when it comes to outsourcing, is done right. And we are keen to talk to studios like that and work out what part of their whole pipeline, we can help with. Then where we can step in and help be it localising a game, or staff a customer support team. Really, anything that a core team doesn’t want to handle – that’s what I think is the right process for us, and I think is what the industry is now sophisticated enough to expect. Not just saying ‘oh yeah, I’ll do a few weeks of translation for you’ and leaving it at that.
The idea will be to take away the painful, expensive stuff away and look after it for them.
There’s been a lot of talk about this Hollywood-style model – but it hasn’t really materialised. Do you think you’re close to it?
I was talking to the Eidos guys recently and had a lot of praise for their studio-led approach. It’s a good model, but you have to do it right – and now you’ve got the likes of Paramount rolling up to games, and these guys are following the Hollywood model to the letter. They aren’t saying ‘well, we need this team here doing art, and a QA team here’ – it’s very different. And they’re getting it right for games, so it can be done.
But for us it’s more about being able to shoulder the burden overall – not just that specific model. So we’ve been branching out and talking to a lot of the Korean firms who now want to bring their MMOs over to the West. And that means hiring a Korean project manager – people relevant to a project that we can employ.
So that’s part of the plan – investing in teams and growing the business to suit what is demanded by clients.
Are you able to tell us what the financial terms of the acquisition are?
Not at the moment. When studios get bought, developers work hard to protect the price because often those investments are as much about talent as they are assets. And it’s the same for us – this acquisition is not the management team cashing in and moving off. The move is a conscious decision to partner up with a company we can work with as we grow properly, and ultimately, gain a lot of clout.
And it’s also about tooling up for what’s next in the outsourcing market. Even if Screen Digest have it half-right, and it’s a $2bn industry by 2010, that’s still huge – EA is investing a lot in outsourcing, so is THQ, so are the other publishers, perhaps not all spending the same amount of money. But that’s a huge indication of the direction this industry is heading.
Do you think we’ll see more consolidation in the services space? Could a publisher buy an outsourcing firm to satisfy its demand?
I don’t think it makes sense to buy an outsourcing firm if you’re a pure games publisher because if you really understand outsourcing it’s about having that cost off the balance sheet. And there are only a handful of publishers now who believe you need the costs on your balance sheet – and that number is decreasing every year. The new players coming into the market haven’t invested in operations.
However I do think other players will follow suit – I’m sure other players will watch what we’ve done and start talking to potential financing partners.