AppLovin Corp., a software company that helps developers make money from their mobile apps with ads, today made an offer to acquire video game specialist Unity Software Inc. for $20 billion.

The offer values Unity at $58.85 per share. That represents a 18% premium to the Monday closing price of the company’s stock. 

Palo Alto, California-based AppLovin went public last year. The company provides cloud services that enable mobile developers to sell ad space in their apps to brands. Additionally, AppLovin offers tools that help developers increase their apps’ installed base and grow advertising revenues. 

NYSE-listed Unity provides a video game engine that enables software teams to create video games with less work than the task otherwise requires. Unity’s software also lends itself to certain other tasks, such as creating digital twins of industrial equipment to help engineers troubleshoot technical issues. The company generated $320.1 million in revenue last quarter.

AppLovin’s $20 billion bid for Unity comes less than a month after the latter company announced plans to merge with AppLovin competitor ironSource Ltd. The merger is valued at $4.4 billion. AppLovin stated that approval of its $20 billion offer is contingent on Unity canceling the ironSource deal.

AppLovin has structured its proposed acquisition as an all-stock transaction. For each outstanding share of Unity common stock, Unity investors would receive 1.152 shares of AppLovin’s Class A voting common stock and 0.314 shares of its Class C non-voting common stock. Upon the deal’s completion, Unity investors would have a 55% stake in the combined company as well as 49% of the voting rights.

AppLovin’s offer specifies that Unity CEO John Riccitiello would continue in the same role at the combined company, while AppLovin CEO Adam Foroughi would become chief operating officer. The rest of the leadership team would include executives from both firms.

By joining forces with Unity, AppLovin hopes to create an integrated suite of tools that developers could use to both create video games and monetize them. The company argues that such an integrated toolkit would increase developer productivity. 

“With the scale that comes from unifying our leading solutions and innovation that would be achieved with the combination of our teams, we expect that game developers would be the biggest beneficiaries as they continue to lead the mobile gaming sector to its next chapter of growth,” Foroughi said.

According to AppLovin’s estimates, the combined company could reach $7 billion in annual revenues by the end of 2024. AppLovin projects that the combined company’s adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, could grow to $3 billion in the same frame.

One reason AppLovin is expecting adjusted EBITDA to grow is because a deal would create cost reduction opportunities. 

The acquisition would make it possible to realize $500 million in annual adjusted EBITDA synergies by the end of 2024, AppLovin estimates. The company expects that number to grow to more than $700 billion by the end of 2025. AppLovin plans to realize the synergies through a combination of “accelerated revenue opportunities, operational efficiencies and scale benefits.”

AppLovin previously acquired Twitter Inc.’s MoPub mobile ad business in a $1.05 billion deal that closed earlier this year. MoPub developed a cloud service focused on helping developers monetize their apps with ads. Since the acquisition, AppLovin has integrated the service into its MAX mobile advertising platform.

Image: AppLovin

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