Unity Software (U) Announces Merger Agreement With ironSource
Unity Software U recently announced an agreement to buy app monetization company, ironSource IS in a $4.4 billion, all-stock deal to help the gaming platform boost its advertising technology.
Unity specializes in developing 3D platforms, used to build games for PCs, mobile devices and gaming consoles, while ironSource develops advertising technology used to monetize games.
The companies' complementary offerings are aimed at creating a unique end-to-end platform that allows creators to create, publish, run, monetize, and grow live games and real-time 3D (RT3D) content seamlessly.
Following the merger, Unity’s game engine, ad platform and gaming services will merge with IronSource’s mediation, publishing and monetization solutions. ironSource’s mediation platform will leverage the combined strength of the two companies’ ad networks, which will deliver increased user reach and data scale and provide an increased return on ad spend for advertisers.
Per the purchase terms, each ordinary share of ironSource will be exchanged for 0.1089 shares of Unity common stock. The deal values ironSource at a 74% premium to its 30-day average exchange ratio. U’s shareholders will own 73.5% of the combined company, while ironSource’s shareholders will own the remaining 26.5% of the business.
Unity expects the merger to deliver a run rate of $1 billion in adjusted EBITDA by the end of 2024 and $300 million in annual EBITDA synergies by 2025.
The proposed all-stock transaction has been approved by the board of directors of both companies, and is expected to close in Unity's fourth-quarter 2022. The transaction is subject to customary closing conditions, and regulatory and shareholder approval.
Unity Software Inc. Price and Consensus
Unity Software Inc. price-consensus-chart | Unity Software Inc. Quote
What Awaits Unity Software in the Rest of 2022 ?
Shares of Unity Software plunged 74.2% in the first half of 2022 and nearly 18% after the company announced the merger with ironSource. In addition to the deal, Unity also cut its full-year revenue outlook. The company now expects sales for the year to be between $1.3 billion and $1.35 billion, compared to its earlier estimate of sales in the range of $1.35-$1.42 billion.
Unity's board of directors also authorized a 24-month share buyback program of up to $2.5 billion, effective upon the closing of the merger, which is expected to reduce dilution caused by the transaction.
This merger is one among quite a few recent business expansions for Unity. Earlier this year, the game development platform purchased software developer, Ziva Dynamics. Prior to that it had acquired 3D data handling company, Pixyz Software; SpeedTree; Parsec; VFX platform, Weta Digital; and collaboration tool maker, SyncSketch.
This Zacks Rank #3 (Hold) company has been struggling so far in 2022, primarily due to a slowdown in digital advertising sales and the combined weight of macroeconomic factors such as rising interest rates, the war in Ukraine and growing inflation. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The tech sector at large is showing signs of a slowdown. Last month, Unity cut about 4% of its workforce, saying the move served as a way to better match the size of its staff with its needs.
Meta Platforms META is limiting its intake of new employees to cut costs due to weak revenue forecasts. Facebook's parent company, Meta Platforms is pausing or slowing down hiring for most mid-to-senior level positions after announcing a strategy to expand into the metaverse.
Microsoft MSFT is slowing down hiring for its Office, Windows, and Teams groups to better prepare itself for the coming fiscal year and contend with the current economic environment. In early June, Microsoft revised its fiscal fourth-quarter revenues and earnings guidance downward, citing the impact of foreign exchange fluctuations.
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