Unity to Buy IronSource for $4.4 Billion. IronSource Stock Surges, Unity Slumps.

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Unity Software

will take over

IronSource

in an all-stock $4.4 billion merger deal—and investor sentiment on the two companies have diverged in a big way on the news.

The two groups announced that they have reached a definitive agreement under which

IronSource

(ticker: IS) will become a wholly-owned subsidiary of Unity (U) in a deal that will see each share of IronSource exchanged for 0.1089 shares of its new parent. Unity stockholders will own almost 74% of the combined company following the merger. 

Shares in Unity, a software group chiefly focused on video games, slumped 7% in U.S. premarket trading on Wednesday, while IronSource stock soared 52% higher. IronSource is an Israeli software group that primarily allows mobile content creators to scale their apps and businesses.

Valued at $4.4 billion, the deal represents a 74% premium to the 30-day average exchange ratio, the groups said. Unity’s board has also authorized a share buyback program of up to $2.5 billion once the transaction is closed.

The merger is expected to deliver a run rate of $1 billion in adjusted earnings by the end of 2024, and $300 million in annual adjusted earnings synergies by the third year, the groups said.

The announcement of the deal came in tandem with a troubling update from Unity, which has slashed its full-year 2022 revenue guidance to a range of $1.3 billion to $1.35 billion, down from a previous outlook of $1.35 billion to $1.43 billion. IronSource reaffirmed its full-year guidance.

Shares in both companies have suffered severely this year as part of a selloff in tech stocks that has driven the

S&P 500
and

Nasdaq
into a bear market—but Unity and IronSource have both fared worse than most.

While the Nasdaq is down 29% this year, both stocks have lost 71% as of Tuesday’s close. IronSource is set to recoup a chunk of those losses following the deal news while Unity’s share price erodes further. Investors may see the deal as too expensive or have soured on Unity’s updated guidance.

Write to Jack Denton at [email protected]