Latest play follows the announcement of proposed Unity and ironSource merger

AppLovin submits Non-Binding Proposal to join Unity 

In a carefully calculated announcement, AppLovin has submitted a non-binding proposal to join forces with Unity creating a one stop shop for game developers; conditional on Unity terminating it's proposed acquisition of ironSource

The move would create a comprehensive tool for developers wildest desires in forging concepts into reality and growing them. Through early creation and design to growth and monetization the AppLovin proposed Unity merger would redefine the process of game development for creators and revolutionise the games industry. 

The force behind this proposal AppLovin operates a world leading mobile marketing and monetization service, providing the ability to grow games into financially profitable services. Unity on the other hand gives a first class platform for developers in creating and operating RT3D (real-time 3D) content. Essentially Unity allows developers to create the games and AppLovin allows them to be financially sound.  

 The AppLovin Perspective 

Speaking of the proposal, AppLovin CEO, Adam Foroughi said the chief beneficiaries are the game developers because of what they would obtain in the complete Unity x AppLovin package.  

Foroughi explained “Over the last decade we have built and operated a leading and innovative company in mobile app marketing and monetization solutions. Unity is one of the world's leading platforms for helping creators turn their inspirations into real-time 3D content. With the scale that comes from unifying our leading solutions and innovation that would be achieved with the combination of our teams, we expect that game developers would be the biggest beneficiaries as they continue to lead the mobile gaming sector to its next chapter of growth.”  

 Industry Reaction 

The move raises serious questions over the fate of the ironSource x Unity merge announced in July, just three weeks ago. John Speakman, CEO here at Gamesforum said "The proposed Unity ironSource merger has clearly forced this reaction but Adam Foroughi's move has significantly tipped the scales back in AppLovin's favour. How this plays out over the coming days and weeks will be fascinating to observe."  

Ad Monetization Expert and Co-host of the hit 2.5 gamers podcast, Felix Braberg added “The proposed AL merger with Unity is an absolute blow to ironSource as the proposed merger would terminate the deal leaving them in a precarious situation. Adam Foroughi's proposal to let John Riccitiello remain CEO shows a level of shrewdness that has to be applauded. Unity has a fiduciary duty to shareholders to examine the merger. It's easy to see how Unity's shareholders would be in a stronger position with AL rather than iS. Never a dull day.."  

Both Speakman and Braberg raise points over the timing of this proposition noting that AppLovin’s bid is designed to terminate the ironSource merger.  

“Unity has been investing heavily in mediation, but the war is almost over. The ironSource merger gave them skin in the game,” said Marc Bearman, VP of oolo and former exec at Unity and MoPub. “The AppLovin bid could help tick that missing item for Unity while also bringing AppLovin into the forefront of XR, as well as feathering its cap with Unity’s fast-growing Gaming Services. It is anyone’s guess what will happen, but on the face of it, this new deal could offer more value compared to the ironSource merger which will win more buy-in from existing Unity shareholders. We may be witnessing the emergence of the first true gaming service powerhouse.” 

What comes next is a question only time will answer. 

The Financials 

As for the parameters of the proposal itself, the transaction would see each outstanding Unity share of common stock exchanged for 1.152 shares of AppLovin Class A voting common stock and 0.314 shares of AppLovin Class C non-voting common stock. Meaning Unity shareholders would attain 55% of outstanding shares of the new combined company, with 49% of the outstanding voting rights of the combined company represented by Class A shares.  

Foroughi commented on the prosperity the merge would offer saying “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.” 

Merging the two companies would produce a minimum of $500 million in Adjusted EBITDA synergies in 2024E, and an on track creation of $700 million of Adjusted EBITDA from synergies in 2025E. Going farther than each company alone was forecast to achieve. The new combined company would go beyond cash flow and revenue growth but also eradicate operational inefficiencies. Savings on infrastructure and the efficiencies of scale drive AppLovin’s certainty that the combined Growth business is the optimal next step for the industry. Stating that the cornerstone of the AppLovin by Unity merge would be Create Solutions business and that the cash flow benefits of running the combined Growth business will be reinvested into the Create Solutions business. 

AppLovin is firm in its belief that it is the sole best positioned company to take on and develop an end-to-end platform alongside Unity. With Unity’s audience reach via the games built on its Create Solutions platform combined with AppLovin’s machine learning engine AXON the new combined company will be able to facilitate not just revenue gains but also value for developers with delivery of a complete end-to-end tool for app creation and growth.  

 Who Will be in Charge? 

Under AppLovin’s proposal, the CEO of Unity John Riccitiello would stay on and become CEO of the new combined company. With AppLovin CEO Adam Foroughi becoming COO of the new joint venture. Unity would appoint the majority of board members in line with Unity’s shareholders’ stake. The remaining board members would consist of a combination from Unity and AppLovin as to be mutually determined. 

By Josh Vowles for Gamesforum