Could Applovin afford Unity Software?

As you may know, Applovin bid $60/share for Unity Software. Will the acquisition go through? I don’t think so. The reason is simple; $U is too hot to handle by $APP.

$U’s proposed acquisition of ironSource is just strategic. ironSource, like Applovin, is an advertising company, but it’s a bit smaller. With the ironSource acquisition, Unity Software aims to diversify its revenue sources. See the table below (From their latest investment presentation)

This move will strengthen its Operate Solutions while still going strong with its unique Create solutions.

On the other hand, Unity Software has a lot of potential in terms of M&A too. It is well known Mark Zuckerberg once tried to snap up the company, but he was lured away by his lieutenants. Now that Sheryl is gone and Meta is raising $10B via bond sale, it is possible Mark will have more leeway to accomplish his dream and realize this acquisition at this historically low market price point.

Besides, other big cos would be keen on buying Unity too. For example, Adobe; Unity is the Adobe of the 21st century. Their Create solutions are the Photoshop of Virtual Reality / Augmented Reality. So if a company of Applovin’s size (with less than $15B market cap) has the guts to make this offer, Adobe, which is currently valued at 10x $U, should also be able to take this big step. Otherwise, it risks sharing the same fate as other big tech companies which failed to evolve, such as Intel (which is losing ground to Nvidia and AMD) or McAfee (which has lost to newcomers like Palo Alto Software).

Speaking of Nvidia, the GPU giant may be interested in purchasing Unity too. After all, Jensen Huang defines the company as a software company before hardware and anything else. And that’s the right strategy, IMO.

Other usual suspects include Alphabet and Microsoft.

Historically, we have never seen a company pay a 100%+ premium on the acquisition, so it is unlikely $U board to sell the company at this current price. Unity once saw a $180/share value. It was closer to $30/share before $APP’s offer.

See https://www.wallstreetprep.com/knowledge/premiums-in-ma/ for the full analysis

We’ll see what the future holds for the company. As a shareholder, I hope they’ll remain private and grow. With the acquisition of ironSource, they have the potential to generate boatloads of revenue while they further mature their real business, Create solutions.

DISCLOSURE: This is not investment advice. I do hold shares of some of the companies mentioned in this post.

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Emre Barack Sokullu

🌎 Globetrotter 👨🏻‍💻 Volupta LLC 👨🏻‍💻 RISG Corp 📈 0 to 1 Ventures (Wordpress, H2O.ai, BTC) ⚽️ Galatasaray SK Congressmember