Tencent’s M&A could hit new levels in 2017. The $233 billion Chinese tech giant will probably follow its purchase of mobile-games maker Supercell with similar-sized deals abroad. A bolder move would be buying U.S. heavyweight Activision Blizzard.

As well as operating WeChat, the ubiquitous chat app, Tencent is dominant in gaming at home, accounting for half of industry revenue. But it is a weakling overseas, with many games lacking global appeal: data tracker Newzoo estimates just 15 percent of gaming revenue came from outside of Asia in 2015. If Tencent is truly ambitious about long-term growth, it will need to tap gamers abroad.

    So far, Tencent has taken stakes in small outfits from South Korea’s CJ Games to Glu Mobile in San Francisco. In June it stepped things up by agreeing to buy Supercell, the Finnish group behind “Clash of Clans”, in an $8.6 billion deal.

    Similar buys will surely follow. Japanese-listed Nexon, with a $6 billion market value, smaller counterpart GungHo, or South Korea’s NC Soft could be prime targets: all three have games that are already popular in the region, and publish these in China through Tencent.

    The real prize would be the $27 billion Activision Blizzard. The U.S. gaming group’s stable runs from “Call of Duty”, the best-selling military videogame, to mobile hit “Candy Crush”. Its newest release, “Overwatch”, is quickly becoming a serious contender to Tencent’s “League of Legends”.

    Tencent already owns 5 percent of Activision. The remainder, with a 30 percent takeover premium to November’s volume-weighted average stock price, would cost just under $39 billion, including assumed debt. If Tencent borrowed the whole amount, that would require debt of about 2.7 times combined EBITDA, which should hit $14.4 billion in 2017, according to analyst forecasts compiled by Thomson Reuters.

Taking on that much debt would be a gutsy move. Alternatively, Tencent could sell fresh equity in Hong Kong to raise funds. Or Tencent could take a more cautious approach, as it did for Supercell: putting together a consortium of buyers and keeping the deal off its own balance sheet. Pulling this off would not be easy. But it would take Tencent’s global reach up a level.

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CONTEXT NEWS

– Revenues in China’s online gaming market will reach 221 billion yuan ($32 billion) in 2017, representing an increase of 20.8 percent, according to data from iResearch.

– Hong Kong-listed Tencent is China’s largest gaming company by revenue. In June, it led a consortium to buy 84.3 percent of Finnish mobile games-maker Supercell in a deal worth $8.6 billion. The deal values Supercell’s equity at $10.2 billion.