Publicly traded software companies Unity Software Inc. and ironSource Mobile Ltd. today announced plans to merge in a transaction worth $4.4 billion.
San Francisco-based Unity sells a video game development platform of the same name that ranks as one of the most popular products in its category. The company also has a presence in other markets. Unity offers tools that developers can use to create simulations of industrial equipment, virtual reality applications and other types of software.
Yet another market where Unity competes is the online advertising segment. The company offers a cloud service that video game companies can use to deliver ads to their users, as well as perform related tasks such as tracking ad effectiveness. The newly announced merger with ironSource will expand this part of Unity’s business.
Tel Aviv-based ironSource provides a so-called ad mediation platform for application developers. The platform helps developers make money from their applications more easily.
A software firm can sell advertising space within its application’s interface to brands through a service known as an ad network. Using an ad network, multiple brands can bid to place promotions in an application and the bidder with the highest offer wins.
Developers rely on ironSource’s software to optimize their use of ad networks. The software helps developers manage the logistics of selling ad space in their applications, as well as optimize the amount of revenue they generate. Moreover, ironSource provides marketing tools that can be used to grow an application’s user base.
“The combination of Unity and ironSource better supports creators of all sizes by giving them all the tools they need to create and grow successful apps in gaming and other consumer-facing verticals like e-commerce,” Unity Chief Executive Officer John Riccitiello said in a statement.
As part of the proposed merger, ironSource’s investors are set to receive 0.1089 shares of Unity common stock for every ordinary ironSource share they own. The deal values ironSource at $4.4 billion. After the deal closes in the fourth quarter, ironSource shareholders will receive a 26.5% stake in the combined company while Unity’s investors will have a 73.5% stake.
The transaction also has a number of other components. Silver Lake and Sequoia Capital, Unity’s two largest shareholders, will invest a combined $1 billion in the company when the merger closes. In conjunction with the investment, Unity will launch a share buyback program through which it intends to purchase $2.4 billion worth of stock over two years.
The company expects the acquisition to provide a significant improvement in its earnings before interest, taxes, depreciation and amortization. Unity projects that merging with ironSource will grow its adjusted EBITDA run rate to $1 billion by 2024. In the longer term, Unity expects to achieve EBITDA synergies of $300 million within three years of closing the deal.
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