Unity is merging with Ironsource in an all-stock deal valuing Ironsource at $4.4B in a big consolidation play for gaming – TechCrunch

updates: the companies have confirmed the news here. IronSource is being valued at $4.4 billion in the all-stock deal. Part of the transaction will also involve Silver Lake and Sequoia, the two largest Unity shareholders, to invest $1 billion in Unity in the form of convertible notes after the transaction closes.

The companies expect the detail to close in Q4, and “is expected to generate a run rate of $1 billion in Adjusted EBITDA by the end of 2024,” Unity said.

“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, in a statements. “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 deal underscores a definite shift in the industry. The Israeli ecosystem produced 52 new Unicorns during the first half of 2021, said Avihai Michaeli, an investment banker and startup advisor, but those who proceeded to IPO have since lost some 50-70% of their valuation this year due to the downturn, a trend that inevitably also laid pressure on Ironsource (which indeed went public last year). “Ironsource will not be the last,” he said of the dealmaking that the current climate is spurring.

Original story from earlier: The downturn in tech valuations is leading to some significant M&A activity, and the latest development on that front looks like it is coming from the world of gaming and perhaps more specifically, interactive developer ops. Unity, the massive games and other interactive content development platform, is planning to merge with Ironsource, an app monetization platform that provides tools for ads, cross-channel marketing, distribution and more.

The news is not yet official, but a source tells us that it will be announced formally as early as later today. A spokesperson for Ironsource did not deny the deal when I contacted the company to ask for comment; she only said that she would be sending me a comment when she could later. We’re continuing to ask questions and will update this story as we hear more.

The move would bring together two powerhouses in their respective fields — interactive development and app monetization. However, both companies have something else in common: they are publicly traded and have seen their stocks decline in recent months, in line with the larger downturn in the technology sector. That’s leading to pressure from shareholders, on top of the companies’ wider strategies to continue growing and diversifying themselves as businesses in what is shaping up to be a challenging climate.

In Ironsource’s last quarterly earnings, reported in May, the company noted a healthy revenue jump of 58% to $190 million, but its guidance for the next quarter and full-year were less robust: it adjusted down its expected FY figures to a range of $750 million to $780 million, versus previous guidance of $790 million to $820 million. The company operates in the black, with a net income of $13.8 million in the previous quarter. The company was one of the wave of businesses that went public via SPAC during the Covid-19 pandemic. (In its case it went public in 2021, when it was valued at over $11 billion.)

Meanwhile, Unity’s quarterly earnings, announced in the same month, reported revenue of $320.1 million for the quarter, up 35% on the year. Yet it also adjusted down its guidance for the next quarter and the full year, citing “challenges with monetization products that we expect to impact 2022.” (Cue buying more assets to help with, yes, monetization…) It said it expects to make between $290 million and $295 million next quarter, and between $1.350 billion and $1.425 billion for the year.

And importantly, despite its size and market traction, Unity is operating in the red: it posted a net loss last quarter of $177.6 million compared to $107.6 million in the quarter a year ago.

The deal has been described to me by a source as a merger, but one company is definitely bigger than the other. Ironsource’s market cap at the time of writing is $2.3 billion, but that figure has dropped drastically in the last six months. Unity is currently valued at $11.8 billion, although it has similarly been weathering a pretty rough financial storm: its stock has lost nearly two-thirds of its value in the last six months.

Pursuing M&A as a route to product and user growth has long been a strategy for larger tech companies, but the last several months have seen a number of M&A deals surface among smaller players, too, as funding sources become a less less free flowing, performance targets are tightened, and valuations drop.

Both of these companies are no strangers to that trend. Ironsource’s last acquisition was picking up Tapjoy in January for $400 million. Unity in the same month acquired Ziva Dynamics to expand the tools that it offers to games and other interactive developers, for an undisclosed sum.

… And as we got ready to hit publish on this story, it looks like the Israeli press — Ironsource is traded in the US but was founded out of Tel Aviv — is also starting to report the news.

More to come.

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