TFW you think you have a date to the dance … and then it turns out you don’t.
On Tuesday, AppLovin offered to buy Unity in an all-stock merger valuing Unity at $20 billion – but the offer doesn’t include ironSource.
The news comes just three weeks after Unity announced its plan to acquire ironSource for $4.4 billion.
AppLovin’s offer to buy Unity sans ironSource is pending acceptance by Unity’s board of directors but has the unanimous support of AppLovin’s board.
There is a wrinkle, though: In addition to board approval from the Unity folks, the deal hinges on whether Unity is able to terminate its proposed acquisition of ironSource.
If the deal happens, AppLovin will take on Unity’s name, and Adam Foroughi, AppLovin’s CEO, will become COO of the new company. Unity’s current CEO John Riccitiello (who recently made statements that did not endear him to the developer community) would become CEO of the combined entity, called Unity. IronSource would get a breakup fee.
The stocks of all three companies dipped on the news of AppLovin’s bid.
The rationale
It makes sense why AppLovin wouldn’t want ironSource, since many of its capabilities, including its mediation business, are duplicative with what AppLovin already has with its MAX offering.
But why does AppLovin want Unity?
Mobile analyst and Mobile Dev Memo Editor Eric Seufert is always good for a smart hot take: inevitable consolidation on the demand side hastened by the release of Apple’s AppTrackingTransparency framework.
Why is Applovin offering to merge with Unity? Back in 2018, at the dawn of in-app bidding, I proposed that real-time bidding for inventory would cause consolidation on the demand side. ATT is accelerating that. https://t.co/U5f1CaF1OB pic.twitter.com/W49A8gSLtM
— Eric Seufert (@eric_seufert) August 9, 2022
AppLovin is also looking for more first-party data to fuel its machine-learning algorithms.
Unity has a big monetization and advertising business of its own, but it’s primarily a game creation software provider with market share of somewhere between 65% and 75% of mobile game creators.
Although AppLovin has said it’s moving away from game development and content creation, Unity’s audience reach through the games built on its platform could be combined with Axon, AppLovin’s homegrown recommendation and prediction engine.
Together, AppLovin and Unity would have a stack that includes tools for 3-D game creation, user acquisition, monetization, analytics, attribution and programmatic advertising.
Nuts & bolts
AppLovin predicts that, together with Unity, the combined business would generate an estimated run rate of more than $3 billion by the end of 2024 and more than $700 million in adjusted EBITDA “synergies” by 2025.
The all-stock merger would be payable in a mix of AppLovin stock and would value Unity at $58.85 per share, which is a 48% premium on Unity’s share price as of July 12. That’s the day before Unity announced its (now seemingly ill-fated) plan to merge with ironSource.
Also on Tuesday, AppLovin cut its 2022 sales guidance for its first-party apps business. The projected range is now between $1.7 billion and $1.85 billion rather than $2 billion and $2.15 billion. AppLovin’s guidance for software platform revenue didn’t change and is still expected to hit between $1.14 billion and $1.29 billion.
If the AppLovin/Unity merger is approved, it would cap a breakneck few years of blockbuster M&A for the company, including the acquisitions of MoPub, Adjust, Machine Zone and CTV/OTT ad platform Wurl.
