- After Weta’s $1.6 billion asset sale to Unity, the famed VFX house is looking to make acquisitions.
- WetaFX Prem Akkaraju sees M&A heating up and prices rocketing as a result of the Unity deal.
- The demand for content may prompt more studios to bring VFX and other parts of production in house.
Just four months after Weta’s $1.6 billion deal to sell its tech, tools, and engineering talent, Peter Jackson’s Academy Award-winning visual effects company — known for “Lord of the Rings” and “Avatar” — is now in acquisitive mode. But the famed VFX and animation house, now known as WetaFX, has seen its own ambitions slightly curbed by its own win, said WetaFX CEO Prem Akkaraju, who anticipates M&A activity heating up across the board.
Weta had been examining potential large-scale acquisitions up until its own mega-deal with Unity, which had the unintended effect of driving up the valuations of other major VFX firms.
“Prices have gone crazy because of the deal we did,” Akkaraju told Insider. “We’re a little bit of a victim of our own success in that sense, because we’ve kind of created these price expectations for the larger players like us.”
WetaFX plans to grow its own team organically, with new outposts currently in development in Vancouver and Melbourne, while keeping an eye on the market. The company is now 2,400 people strong, nearly doubling in size since Akkaraju took the helm in early 2020. Revenue has grown 40% and EBITDA has spiked 80% in that time, according to the exec.
“I’m still looking at potential acquisition targets around the globe,” said Akkaraju. While he declined to go into detail about his search, he said he and his team are looking at small to mid-sized companies with anywhere between 100 to 500 artists on staff.
The heady combination of rocketing demand for shows and movies, increasingly globalized TV and film production, and a competitive job market means that artists and engineers are in scarce supply.
“You’re going to see more M&A activity within the VFX and animation community; I think you’re going to see companies bulk up,” said Akkaraju. “That’s probably because this increased demand has caused a lot of strain on resources, and so the natural reaction to a market would be to then bulk up. And the easiest, fastest way to bulking up is buying — instead of hiring — 1,000 artists. If I can buy a company that has 1,000 artists, then I’m there overnight.”
VFX isn’t the only segment of Hollywood that is seeing unprecedented demand for workers with tech skills. Studios are throwing cash at engineers, data analysts and other tech workers in a bid to acquire talent. Netflix ‘s deep pockets in particular have driven up salaries, and the proliferation of streaming entrants like WarnerMedia’s HBO Max and NBCUniversal’s Peacock has accelerated the content cycle as these services race to get more programming on their platforms.
“Markets are like physics,” said Akkaraju. “Every action has a reaction. And so when an incumbent like Netflix spends this much time, this much money, and [has] this many releases, the others have to react.”
The Hollywood studios flooding screens with more projects are also asking for VFX work to be completed in much shorter time frames.
For many of these studios, acquiring a VFX shop and bringing some of that work in house would make a lot of sense, said Akkaraju. Amid the popularity of effects-heavy shows such as “Stranger Things,” Netflix acquired smaller firm Scanline VFX in November, with the aim of investing in its infrastructure, pipeline, and workforce.
With Hollywood’s traditional studios now heavily focused on streaming platforms, “it’s going to be interesting [to see] if there’s a land grab on services that they want to be a part of,” said Akkaraju.
“That’s one side of the equation,” he continued. “The other side is they love pitting all the VFX and animation companies against each other to drive their costs super low. So they kind of lose that [leverage] if they own it in-house. But I do think it makes sense that there’d be a balance between the two.”