AppLovin (NASDAQ: APP) today announced it has submitted a compelling non-binding proposal to the Board of Directors of Unity Software Inc. (NYSE: U) to combine AppLovin, a leader in mobile marketing and monetization, with Unity, an industry leading platform for creating and operating interactive, real-time 3D (RT3D) content, in a transaction where each outstanding share of Unity common stock would be exchanged for 1.152 shares of AppLovin Class A voting common stock and 0.314 shares of AppLovin Class C non-voting common stock.1 Under these terms, current Unity shareholders would receive approximately 55.0% of the outstanding shares of the combined company, with the Class A shares representing approximately 49.0% of the outstanding voting rights of the combined company. Together the combined business would be poised to offer the most comprehensive and fully integrated creation and growth platform for app developers.

“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,” said Adam Foroughi, AppLovin CEO. “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.”

The combination of the two businesses would expect to generate substantial revenue growth, cash flow and operational efficiencies that are well beyond each company’s potential standalone performance. AppLovin estimates this combination will create over $700 million of Adjusted EBITDA from synergies in 2025E, with a minimum of $500 million in 2024E. Given AppLovin’s track record as a leader in the growth and monetization space for app developers the company believes it is better positioned than any other company to develop an end-to-end platform with Unity. AppLovin runs their Software business at a high margin and believes there would be substantial infrastructure savings and other efficiencies of scale for the combined Growth business. The cash flow benefits of running a large, scaled combined Growth business can be reinvested in the Create Solutions business, which AppLovin views as a cornerstone of its joint strategic advantage.

Unity’s audience reach through games built on Create Solutions paired with AppLovin’s powerful AXON machine learning engine will create material efficiency gains for the combined growth platform, leading to revenue gains, but even more importantly facilitating materially more value to app developers. With AppLovin and Unity working in concert, developers would be able to seamlessly take their app from concept to commercialization with continued growth and optimization at far greater scale and effectiveness, which can drive higher growth for the entire mobile app industry and beyond.

Delivers significant value to shareholders of both companies

• Scale: Approximately $35 billion combined market cap enterprise which offers greater reach and market presence with more than $7 billion in estimated run-rate revenue and over $3 billion run-rate Adjusted EBITDA by the end of 2024E
• Synergy value creation: AppLovin expects to achieve over $700 million in Adjusted EBITDA synergies in 2025E, with a minimum of $500 million in 2024E
• Capacity for strategic investments: Given cash flow profile, the combined entity would be expected to continue to have the ability to reinvest for growth and take advantage of strategic opportunities as they arise
• Diverse and liquid shareholder base: The proposed transaction will meaningfully increase the float and diversification of AppLovin’s and Unity’s shareholder base
• Shareholder value creation: Given the combined strategic position and industry leadership, leading to strong top-line growth and cash flow, the proposed combined entity would yield attractive long-term shareholder returns

Management and Board of Directors

AppLovin proposes that Unity’s CEO John Riccitiello become CEO of the combined business and Adam Foroughi become the COO. The Board of Directors of the combined company would be reconstituted so that Unity would appoint the majority of members, consistent with Unity shareholders’ economic stake. The rest of the management team and Board of Directors would be a combination from each company to be mutually determined.

Transaction Details and Timing

Based on this non-binding proposal, existing AppLovin Class B common shares (20:1 votes) would be converted to Class A common shares (1:1 vote) in connection with the closing of the proposed transaction. AppLovin shareholders would hold approximately 45% of the outstanding common shares of the combined company, including Class C, with such shares representing approximately 51% of the outstanding voting rights of the combined company. Unity stockholders would receive approximately 55% of the outstanding shares of the combined company, with Class A common shares representing approximately 49% of the outstanding voting rights of the combined company. The rights of holders of AppLovin Class A common stock and Class C common stock are the same, except with respect to voting. Shares of AppLovin Class C common stock have no voting rights, except as required by law. AppLovin’s Class C common stock is not currently listed on Nasdaq. In connection with the proposed transaction, AppLovin expects to apply to list its shares of Class C common stock on the Nasdaq Global Select Market in connection with the proposed combination.

This proposal has the unanimous support of the AppLovin Board of Directors. Pending acceptance by the Unity Board of Directors, AppLovin is highly confident that its proposed transaction would be completed on a timely basis. The execution of a definitive merger agreement between AppLovin and Unity would be subject to approval by each company’s Board of Directors, the termination of the proposed acquisition of ironSource LTD, and other customary signing conditions. The completion of the transaction would be subject to customary closing conditions, including receipt of required regulatory approvals and approval of AppLovin and Unity shareholders.

Please join AppLovin’s earnings call on Wednesday, August 10, 2022 at 2:00 pm PT for further discussion of this non-binding proposal.

Financial Outlook for 2022E

As AppLovin resets and optimizes the level of investment in the Apps business, the company is lowering the revenue outlook for the Apps portfolio, while maintaining the targets for the Software Platform revenue and overall Adjusted EBITDA.

[1] We have not provided the forward-looking GAAP equivalents for forward-looking non-GAAP metrics, specifically Adjusted EBITDA and Adjusted EBITDA margin, or a GAAP reconciliation as a result of the uncertainty regarding, and the potential variability of, reconciling items such as stock-based compensation expense. Accordingly, a reconciliation of these non-GAAP guidance metrics to their corresponding GAAP equivalent is not available without unreasonable effort. However, it is important to note that material changes to reconciling items could have a significant effect on future GAAP results.

Advisors

J.P. Morgan is serving as AppLovin’s financial advisor and Wilson Sonsini Goodrich & Rosati is serving as AppLovin’s legal advisor.

About AppLovin

AppLovin's leading marketing software platform provides app developers with a powerful, integrated set of solutions to solve their mission-critical functions like user acquisition, monetization and measurement. AppLovin is headquartered in Palo Alto, California with several offices globally.

Source: AppLovin Corp.