Unity rejects AppLovin’s $20 billion merger offer – TechCrunch

Unity announced this morning that it is committed to its merger with ironSource and will reject AppLovin’s $20 billion offer.

Last month, news broke that Unity — a widely used game engine — would be merging with ironSource, a mobile app monetization and distribution company. But the Israeli company’s larger competitor AppLovin submitted an unsolicited bid to acquire Unity on the condition that they end their deal with ironSource.

Unity powers thousands of games on various consoles, but when it comes to mobile apps, Unity supports popular games like Pokémon Go, Animal Crossing: Pocket Camp, Call of Duty: Mobile and more. Unity CEO John Riccitiello said he was interested in merging with an app company like ironSource because it would give Unity developers more tools to grow and monetize mobile games. Plus, in the midst of a macroeconomic downturn, M&A can boost consumer growth, especially when valuations fall and venture capital becomes harder to find. Despite its prevalence in the video game market, Unity is losing money. The company reported a net loss last quarter of $177.6 million, up from $107.6 million a year earlier.

As TechCrunch’s Ingrid Lunden pointed out, both Unity and ironSource are familiar with this M&A playbook. In January, ironSource acquired Tapjoy for $400 million. In the same month Unity acquired Ziva Dynamics to expand the tools it offers to game and other interactive developers for an undisclosed sum.

In AppLovin’s proposal, Unity would own 55% of the combined company’s stock, representing 49% of the voting rights. But in the agreement with ironSource, the Israel-based company will become a wholly owned subsidiary of Unity. As part of the transaction, Silver Lake and Sequoia will purchase a total of $1 billion of convertible notes upon closing.

By the numbers, a potential deal with AppLovin would be more significant; Unity valued ironSource at $4.4 billion, while AppLovin’s offering was valued at $20 billion. AppLovin estimated that if merged with Unity, the combined company could reach an estimated adjusted EBITDA of more than $3 billion by the end of 2024. With ironSource’s proposal, that figure is just $1 billion. But the initial deal with ironSource gives Unity more control over the long term, and the Unity Board decided that AppLovin’s offer was not a “superior offer.”

“The board continues to believe that the ironSource transaction is compelling and will provide an opportunity to generate long-term value by creating a unique end-to-end platform that enables creators to develop, publish, perform, monetize and develop games live and seamlessly Real-time 3D content,” said Riccitiello.