Applovin proposes a merger with video game software maker Unity

An all-stock transaction valuing Unity at $58.85 per share.
Logos of AppLovin and Unity on a light blue background

Mobile app technology and gaming software company AppLovin officially made an offer to buy video game software maker Unity in an all-stock deal, proposing to pay $58.85 per share.

Related: Microsoft Azure and Unity join forces to empower developers globally

AppLovin’s all-stock deal would have the California-based company pay a total of $17.5 billion to acquire Unity, and the enterprise value (the total value of a company) of the deal is around $20 billion. The news of the proposal boosted Unity’s shares by 7%, but AppLovin’s shares fell by 14%.

AppLovin’s main goal is to help the mobile app industry thrive and grow the mobile app ecosystem. Meanwhile, Unity’s main product is a cross-platform game engine that allows anyone to make their video games for any platform available on the market.

Unity to own the majority stake, AppLoving to hold the majority of the voting rights

If the deal goes through and the two industry giants agree to merge, approximately 55% of the outstanding shares will be allocated to Unity stockholders. However, Unity’s Class A common shares will represent approximately 49% of the outstanding voting rights.

This means AppLovin shareholders will have 45% of the outstanding common shares if the two companies combine, with the mobile app company having the 51% of the outstanding voting rights. However, nothing is concrete as of yet.

The official press release from AppLovin says “The proposal has the unanimous support of the AppLovin Board of Directors”, meaning it’s all up to the Unity side at this point.

The official proposal sees Unity’s CEO John Riccitiello as the CEO of the combined company and AppLovin’s current CEO Adam Foroughi would become the new COO. The management team and Board of Directors of the company will be a combination from each company to be mutually determined if the Unity side says yes to the proposal.

Adam Foroughi, AppLovin CEO believes the two companies combined can create a market-leading business and the joint company could reach $3 billion in revenue by the end of 2024. Foroughi’s statement includes the following lines:

“This deal would be in the best interest of shareholders of both companies. Over the last decade, we have built and operated a leading and innovative company in mobile app marketing and monetization solutions. Unity is one of the world’s leading platforms for helping creators turn their inspirations into real-time 3D content.

“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.”

AppLovin’s proposal to merge with Unity is subject to the termination of Unity’s merger with IronSource, as well as other “customary signing conditions”, per the official statement.

Just a little over a month ago Unity had to let go 4% of its staff to realign its sources, and now the company is subject to two massive merger options and a partnership deal with Microsoft Azure.

Expert opinions from Bidstack and Gismart:

Mobidictum also reached out to James Draper, Founder & CEO at Bidstack, and Arkadiy Kuznetsov, CMO at Gismart for their expert opinions on the possible merger.

James Draper said the following:

“This is a fascinating move – not least because it puts a question mark against Unity’s acquisition of ironSource. If the Unity and Applovin deal goes ahead, it will supercharge the UnityAds business and revenue potential for game developers, while creating an immensely powerful combined company that will be appealing to shareholders.

“AppLovin has acquired-in content (game studios/games), which drove up its gross margins as the external pay-aways were eradicated and targeted advertising content to its consumers, the gamers, became easier to control as it owned the gamers’ data, as both studio and adtech provider.

“This deal also provides greater momentum to in-gameplay advertising as a category, where ad placements will be combined with existing ad formats and create even greater always-on revenue for game creators and publishers. With AppLovin, Unity becomes an even more attractive engine to build out on for game developers large and small, with such easy access to monetization and revenues. We’re interested to see how this all plays out.”

Arkadiy Kuznetsov of Gismart said:

“It appears as if AppLovin is attempting to build an “all-in-one” ecosystem, having recently acquired Adjust and now looking to acquire Unity. In my opinion, it all leads to establishing some kind of monopoly within the market, which might potentially negatively affect traffic acquisition and monetization in the long run.

“The monopolized market will also obviously have its pros, yet it’s always best to have healthy competition, driving the industry forward.”

Unity announced its Q2 2022 financial results after Applovin’s proposal, but Unity CEO John Riccitiello said they won’t make any comments about the offer for the time being.However, Unity CFO Luis Felipe Visoso said “We’re confident that the ironSource merger will make us stronger as we offer our customers an end-to-end platform that will benefit creators and shareholders.” and raised a few eyebrows.

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