American video game designer Unity software is in talks to sell its China unit and is seeking strategic investors for a business valued at more than $1 billion, sources said.
News of the talks, which come amid tensions in US-China relations and concerns about data storage by foreign companies, saw Unity shares rise more than 5% on Tuesday.
The San Francisco-based company is willing to help grow its China unit, said four sources, who declined to be identified because they were not authorized to speak publicly on the matter.
There is also growing interest in expanding game-making software into new technologies such as the so-called metaverse, an immersive three-dimensional Internet, they said.
Unity entered China in 2012, and its eponymous software, known as a game engine, powers many of the country’s most popular games, including the game leader’s “Honor of Kings.” Tencent Holdings and “Genshin Impact” by miHoYo.
Rivals include Epic Games, the US developer of the increasingly popular Tencent-backed Unreal Engine 5.
Unity’s spin-off plan is driven by a desire to see its software used more widely in China in areas as varied as modeling smart cities to industrial design, as well as in the metaverse, said two of the people.
Potential investors Unity has been talking to have made big bets on the metaverse, they said.
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‘More local autonomy’
With China tightening data handling regulation, Unity believes a spin-off would help that expansion by giving the unit more local ownership and autonomy over how it operates in the country, which could also increase its appeal to local government and state partners , people said.
The spin-off would be one of China’s biggest tech deals this year as investment activity has slowed due to weak economic growth, Covid outbreaks and regulatory tightening.
Unity China Chief Executive Zhang Junbo has been working on the plan for at least a year, two of the people said. Progress was slowed by Unity’s share price falling 80% from its November 2021 peak amid weakness in US tech stocks and by a product that missed performance expectations, they said .
Zhang revealed Unity’s China expansion ambitions to local tech media outlet 36Kr last month without mentioning a spin-off, saying Unity was exploring ways to make its technology “secure and controllable” in the China, a reference to the government’s mandate that important technology be controlled. at the domestic level.
He also said Unity would likely hire more than a thousand engineers in the coming years as it expands offices in Beijing and Guangzhou, in addition to its main office in Shanghai.
Two of the people said Unity’s Shanghai-based employees have been asked to sign contracts with the new entity, and there is talk of a separate operating budget from its parent.
A local joint venture (JV) could help Unity “strike a balance with sensitive industries such as governments and manufacturing that are looking to modernize their operations with digital twins and real-time 3D-enabled technologies,” Matthew Kanterman , director of research at Ball Metaverse. Research partners, he said.
Although forming a joint venture in China carries risk, a notable example is a dispute between British chip maker Arm and its Chinese unit – Kanterman said such joint ventures have worked well for many Western technology companies, such as HP Inc and Nokia Oyj.
“Having the right local partners can help Unity succeed where others struggle,” Kanterman said.
Reuters with additional editing by Jim Pollard
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Jim Pollard
Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd newspapers in Sydney, Perth, London and Melbourne before traveling around Southeast Asia in the late 1990s. He was senior editor of The Nation for over 17 years and has a family in Bangkok.
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