IS - AppLovin submits non-binding offer to acquire Unity Software

AppLovin ( NASDAQ: APP ) said Tuesday it submitted a non-binding proposal to acquire Unity Software ( U ) and create an ~$35B combined market cap enterprise.

APP shares slid ~13% premarket while U shares rose 10.5%.

Based on the proposal, each outstanding U share would be exchanged for 1.152 class A voting shares of AppLovin ( APP ) and 0.314 class C non-voting share of AppLovin ( APP ).

U shareholders would receive ~55% of outstanding shares of the combined company, with the class A shares representing ~49% of the combined firm's outstanding voting rights.

Existing AppLovin ( APP ) class B shares (20:1 votes) would be converted to class A shares (1:1 vote).

APP shareholders would hold ~45% of the outstanding shares of the combined company, including class C (which will represent ~51% of the combined firm's outstanding voting rights).

APP's class C shares have no voting rights and are not listed on Nasdaq. APP expects to apply to list its class C stock on Nasdaq Global Select Market.

The merger is expected to generate substantial revenue growth, cash flow and operational efficiencies.

APP expects this merger will create over ~$700M of adj. EBITDA from synergies in 2025, with a minimum of ~$500M in 2024.

The deal is expected to result in over $7B in estimated run-rate revenue and over $3B run-rate adj. EBITDA by the end of 2024.

U's audience reach through games built on Create Solutions paired with APP's AXON machine learning engine will create material efficiency gains for the combined growth platform.

Execution of a definitive merger between APP and U is subject to approval by each firm's board and termination of the proposed acquisition of ironSource ( IS ).

APP proposes that U CEO John Riccitiello become CEO of the combined firm and Adam Foroughi become COO.

The combined firm's board would be reconstituted so that U can appoint the majority of members, consistent with its shareholders' stake.

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