Unity Software, IronSource to merge in a$4.4B all-stock deal
Unity (U) and ironSource (IS) announced that they have entered into a definitive agreement under which ironSource will merge into a wholly-owned subsidiary of Unity via an all-stock deal, where each ordinary share of ironSource will be exchanged for 0.1089 shares of Unity common stock.
Once closed, current Unity stockholders will own approximately 73.5% and current ironSource shareholders will own approximately 26.5% of the combined company.
The companies’ complementary offerings create a unique end-to-end platform that allows creators to create, publish, run, monetize, and grow live games and RT3D content seamlessly.
The proposed all-stock transaction has been approved by the boards of directors of both companies, is expected to close during Unity’s fourth quarter of 2022 and is subject to customary closing conditions, and regulatory and shareholder approval.
The combined company is expected to generate a run rate of $1B in Adjusted EBITDA by the end of 2024.
Unity Cuts Guidance
Unity Software cut FY22 revenue view to $1.3B-$1.35B from $1.35B-$1.425B – FY22 consensus was for $1.47B. Cites current assessment of macro trends, product launch and competitive dynamic with the monetization business.
Unity expects second quarter financial results to be slightly higher than the top end of the guidance range provided during its first quarter earnings call.
Needham analyst Bernie McTernan downgraded ironSource (IS) to Hold from Buy after the company announced its intent to merge with Unity (U) in an all-stock transaction. The analyst notes that ironSource shares trade at a 8% discount to the implied takeout price.
McTernan adds that the companies’ complementary platform fit, plus profitability that ironSource provides, were reasons for the large premium paid and will likely prevent smaller players from making an over-the-top offer as consolidation continues to be a theme in the mobile ad-tech space.
Piper downgrades Unity to Neutral, says ironSource deal creates overhang – Piper Sandler analyst Brent Bracelin downgraded Unity (U) to Neutral from Overweight with a price target of $34, down from $55, after the company announced a deal to merge with ironSource (IS).
While stating that the pending merger “appears to be a highly strategic acquisition that not only adds material scale and product breadth to the gaming segment but could also help improve profitability,” Bracelin cut his rating based on the near-term overhang that he sees the merger creating as well as increased execution risk over the next six to nine months.
DA Davidson analyst Franco Granda lowered the firm’s price target on Unity (U) to $60 from $85 and keeps a Buy rating on the shares. The company’s deal to acquire ironSource (IS) is “very attractive” due to the confluence of revenue and cost synergies, attractive valuation, and highly complementary tech stack amidst a backdrop of privacy-driven platform changes and macro pressures, though his reduced price target reflects lower broader market multiples, the analyst tells investors in a research note.
Cathie Wood’s ARK Investment bought 1.02M shares of Unity on Wednesday.
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