Unity Enters Merger Agreement with ironSource - LAVNCH [CODE]

Unity Enters Merger Agreement with ironSource

Unity and ironSource, a business platform that empowers mobile content creators to turn their apps into scalable businesses, have entered into a definitive agreement under which ironSource will merge into a wholly-owned subsidiary of Unity via an all-stock deal, where each ordinary share of ironSource will be exchanged for 0.1089 shares of Unity common stock.

Unity Enters Merger Agreement with ironSourceOnce closed, current Unity stockholders will own approximately 73.5% and current ironSource shareholders will own approximately 26.5% of the combined company. The companies’ complementary offerings create an end-to-end platform that allows creators to create, publish, run, monetize, and grow live games and RT3D content seamlessly.

“We believe the world is a better place with more successful creators in it. 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,” said John Riccitiello, CEO of Unity. “This is a step further toward realizing our vision of a fully integrated platform that helps creators in every step of their RT3D journey. We look forward to welcoming Tomer Bar-Zeev, the CEO of ironSource, and the rest of ironSource’s talented team into the Unity family.”

The end-to-end platform synergy from the combination of the companies will enhance Unity’s offerings for creators of all sizes, according to the companies. Together with ironSource, Unity says it will transform and streamline how live games, RT3D apps and services are made by turning today’s linear creation and growth process into a deeply connected and interactive one. By integrating creation and growth more tightly, creators will be able to leverage data on audience feedback to improve content from the earliest stage in the creation process, and throughout the content lifecycle. The companies say this will unlock a flywheel where data from growth feeds improvements in content which in turn drives more business success for the content or app.

“To succeed today, creators need an extensive set of solutions and products working in concert to power amazing user experiences and sustainable business growth,” said Tomer Bar-Zeev, CEO of ironSource. “The combination of Unity and ironSource brings together every product needed to power that flywheel of growth, in a differentiated platform positioned to lead our category and beyond. We couldn’t be more excited about our shared mission to remove obstacles for creators to grow.”

The deal will bring together the Unity game engine and editor, Unity Ads, and the rest of Unity Gaming Services (UGS) with ironSource’s mediation and publishing platforms, giving developers a seamless and interoperable way to create, grow, and monetize their creations across their lifecycle. In the near term, the companies say ironSource’s mediation platform will leverage the combined strength of the two companies’ ad networks to deliver increased user reach and data scale, and provide an increased return on ad spend to advertisers. Telcos will also benefit from the combination of Unity and ironSource, which will provide them with enhanced opportunities to leverage interactive gaming and RT3D experiences on-device.

In addition to delivering benefits for creators, this transaction will allegedly provide significant benefits to shareholders—the combined company is expected to generate a run rate of $1B in Adjusted EBITDA by the end of 2024.

In connection with the merger, Unity’s Board of Directors have also authorized a 24-month share buyback program of up to $2.5 billion, effective upon closing of the merger, which is expected to reduce dilution caused by the transaction.

Silver Lake and Sequoia have fully committed to purchase an aggregate of $1B in convertible notes from Unity at closing, demonstrating their belief in the value creation potential of the merger. The convertible notes to be issued to Silver Lake and Sequoia are due in 2027 and bear an interest rate of 2% per annum. The conversion price is $48.89 per share.

“Beyond our platform, we expect the combination of our business with ironSource to transform Unity’s financial profile to that of a highly profitable and free cash flow positive company,” said Luis Visoso, CFO, Unity. “We expect to generate $300 million in annual EBITDA synergies by year three.”

Upon closing of the merger, Bar-Zeev will join Unity’s Board of Directors and serve as a key member of Unity’s executive leadership team. In addition, two additional ironSource Directors will join the Unity Board of Directors upon closing of the transaction. ironSource’s headquarters in Israel will serve as an additional global hub for Unity.

The proposed all-stock transaction has been approved by the boards of directors of both companies, is expected to close during Unity’s fourth quarter of 2022 and is subject to customary closing conditions, and regulatory and shareholder approval. Additional details and information about the terms and conditions of the transaction will be available in Current Reports on Form 8-K or Form 6-K, as applicable, to be filed by Unity and ironSource with the Securities and Exchange Commission.

Morgan Stanley served as lead financial advisor to Unity. Goldman Sachs also served as financial advisor to Unity, and Morrison & Foerster LLP and Herzog Fox & Neeman served as its legal advisors. Jefferies LLC served as exclusive financial advisor to ironSource, and Latham & Watkins LLP and Meitar Law Offices served as its legal advisors.

In connection with the merger announcement, ironSource reaffirms second quarter and full-year 2022 guidance provided during its first quarter 2022 earnings call.

Unity management expects its second quarter financial results to be slightly higher than the top end of the guidance range provided during its first quarter earnings call. Unity says its Create business continues to perform strongly and the company’s data and engineering interventions in Operate are resulting in improved performance. While Unity expects ongoing strong performance in Create, and continued progress in Operate, it is adjusting its full-year revenue guidance from $1,350 – $1,425 million to $1,300 – $1,350 million to reflect its current assessment of macro trends, product launch, and competitive dynamic with its monetization business.

Unity held a conference call for the financial community at 8:00 AM ET (5:00 AM PT) today to discuss its plans to join forces with ironSource. Unity provided a real-time audio broadcast of the teleconference on the Investor Relations page of its website at investors.unity.com.

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