VR-680x200Since Facebook’s $3 billion acquisition of Oculus VR – a company that develops and manufactures virtual reality headsets – augmented and virtual reality technology has become a major topic of discussion in the M&A world.

For those who are new to this emerging industry, virtual reality is an artificial, computer-generated simulation of a real life environment that typically stimulates the user’s vision and hearing through the use of a headset. Augmented reality, on the other hand, layers computer-generated enhancements on top of an existing reality. Augmented reality is typically used in mobile devices to change the ways in which digital graphics interact with the real world. The recent Pokémon GO phenomenon is a prime example of augmented reality gaming.

The past few years have seen a marked increase in activity in the augmented reality industry, both in terms of emerging technology providers and M&A transactions. A report by Woodside Capital Partners identifies an overall trend towards increasing numbers of augmented reality start-ups, with the emergence of 345 new companies in the years 2011 – 2015 and 32 related M&A transactions during the same time frame. The report anticipates that the market will expand to $80 billion by the year 2022.

A more recent industry report published by Digi-Capital reported $1.5 billion in augmented and virtual reality investments and $600 million in M&A transactions in the period between Q1 2016 and Q1 2017. As those familiar with the tech industry may point out, it is not atypical for investment to outpace M&A activity in newly emerging tech markets. However, given that the virtual and augmented reality market is becoming crowded with more and more start-ups fighting for the business of a relatively small consumer market, industry experts say we can expect to see much more in the way of consolidation in the coming years.

The author would like to thank Erika Anschuetz, Articling Student, for her assistance in preparing this legal update.

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