The board of directors at Unity Software Inc. recently rejected a $17.5 billion buyout offer from AppLovin. According to The Wall Street Journal, the board felt the deal wasn’t “in the best interests of shareholders.” Instead, the board recommended shareholders vote in favor of Unity’s $4.4 billion proposed acquisition of ironSource.
Unity waited six days before rejecting AppLovin’s unsolicited offer. Had the acquisition proposal been approved, AppLovin would have paid out the deal in an all-stock offer valuing Unity at $58.85 a share (an 18% premium compared to its closing price).
“The board continues to believe that the IronSource transaction is compelling and will deliver an opportunity to generate long-term value through the creation of a unique end-to-end platform that allows creators to develop, publish, run, monetize and grow live games and real-time 3D content seamlessly,” said Unity’s CEO, John Riccitiello, in a statement. “We remain committed to and enthusiastic about Unity’s agreement with IronSource and the substantial benefits it will create for our shareholders and Unity creators.”
Unity believes that, once the ironSource deal is approved, the newly formed company will generate a run rate of $1 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of 2024. Moreover, the merger is expected to record $300 million in annual EBITDA synergies in its third year.
The Profit‘s Take:
$17.5 billion was a major lowball offer. Epic Games was recently valued at roughly $30 billion. Unreal Engine and Unity basically have the game engine market split down the middle. So, why settle for almost half of what your direct competitor is worth? Here’s the ideal scenario for Unity: Unity rejects the offer, merges with ironSource, and achieves vertical integration eventually forcing AppLovin out of business. This was an audacious move by AppLovin because they’re trying to derail or make the ironSource deal harder. They can still be a thorn in the side of this whole thing since the ironSource-Unity merger hasn’t officially closed yet.