AppLovin Offers To Acquire Unity In $20B Deal: What Investors Should Know And 3 Stocks To Watch

Mobile app company AppLovin APP wants to buy Unity Software Inc. U, a software and gaming platform company. Here are the details.

What Happened: AppLovin submitted a non-binding proposal to combine with Unity. The Palo Alto, California-based company believes the combination would boost shareholder value and "create an unprecedented full-stack solution for developers to create, monetize, measure and grow games.”

Among AppLovin's other predictions:

• The combined entity would have a run rate of $7 billion in annual revenue
• Adjusted EBITDA of over $3 billion by the end of fiscal 2024.
• Synergies of $700 million in adjusted EBITDA in 2025 and a minimum of $500 million in 2024.

Under the terms of the proposal, AppLovin would pay a mix of Class A and Class C common stock valuing Unity at an enterprise value of $20 billion, or $58.85 per share. That's a 48% premium to the closing price for Unity on July 12, 2022 and an 18% premium to Monday’s closing price.

Unity shareholders would get 1.152 shares of AppLovin Class a voting common stock and 0.314 shares of AppLovin Class C non-voting common stock under the proposal. Unity shareholders would receive 55% of the outstanding shares of the company and have 49% of the voting rights.

“We believe that together, AppLovin and Unity create a market leading business that has tremendous growth potential that would generate an estimated run-rate Adjusted EBITDA of over $3 billion by the end of 2024 and would be in the best interest of shareholders of both companies,” AppLovin CEO Adam Foroughi said. Game developers would be the biggest beneficiaries from the combined companies, he added.

The proposal cites increased scale, synergy value creation, capacity for strategic investments, diverse and liquid shareholder base and shareholder value creation as reasons for the deal to be approved.

See Also: Unity And IronSource Merging: What Does The Mega Merger Mean For Video Game Industry

What’s Next: The proposal from AppLovin comes as both companies are set to report quarterly financial results this week.

Unity will report second-quarter earnings after market close Tuesday. Analysts are expecting the company to report revenue of $298.3 million and a loss of 21 cents per share, according to data from Benzinga Pro.

AppLovin will report second-quarter results after market close Wednesday. The company issued new guidance in its proposal Tuesday.

The company sees software revenue hitting $1.14 billion to $1.29 billion for the full fiscal year, the same as previous guidance. Apps segment revenue is lowered from a range of $2 billion to $2.15 billion to a new range of $1.7 billion to $1.85 billion. Full fiscal year is now expected to be in a range of $2.84 billion to $3.14 billion, down from a previous range of $3.14 billion to $3.44 billion.

Adjusted EBITDA guidance of $1.2 billion remains the same.

The proposal from AppLovin comes on the heels of Unity’s pending acquisition of IronSource IS. Unity sees the combination as being complementary and helping the company achieve profitability and free cash flow.

Unity could reject the deal to focus on its acquisition of IronSource and a previous acquisition of visual effects company Weta Digital announced in November.

Unity has not responded the business combination request at the time of writing.

U, APP, IS Price Action: Unity shares are up 8% to $53.81 on Tuesday.

AppLovin shares are down 12% to $35.18 on Tuesday.

IronSource shares are down $15 to $4 on Tuesday.