AppLovin may try to buy Unity again, as engine maker's shares fell 40% since last year's $17.5 billion offer

The recent Runtime Fee controversy and CEO John Riccitiello’s departure have sparked speculation among some market experts that Unity could be considered an M&A target. Mobile monetization platform AppLovin, which offered to acquire the engine maker last year, was named as a potential buyer.

Citi: AppLovin may try to buy Unity again following John Riccitiello's retirement and pricing controversy

Why might AppLovin be interested in acquiring Unity?

Earlier this week, Citibank analysts cited three potential reasons why AppLovin may want to revisit its proposal to buy Unity (via Seeking Alpha):

“The most likely scenario would be a mix of cash and stock given the pro forma firm’s lean balance sheet and premium multiple that Unity still commands over AppLovin,” Citi said.

In August 2022, AppLovin made an offer to acquire Unity for $17.54 billion at $58.85 per share in an all-stock deal. Foroughi noted that this would allow the combined company to reach an adjusted operating profit of over $3 billion by the end of 2024.

Unity, however, rejected the proposal, sticking to its $4 billion merger with ironSource. The company’s board said the deal wasn’t “in the best interests of Unity shareholders.”

It is worth noting that the two companies are direct competitors in terms of monetization solutions, especially after Unity merged with ironSource last year. So despite Citi’s comments, it is hard to imagine that AppLovin will come up with a new bid at this point, not to mention the potential scrutiny from antitrust regulators.

How has Unity’s position changed since AppLovin’s last proposal?

Unity shares have fallen roughly 40% since AppLovin approached the company with an acquisition offer. And the stock has dropped by 50.3% since last year’s peak of $58.47 per share.

The company currently has a market cap of $11.43 billion.

Although some expected that the recent leadership shakeup would have a positive impact on the price, the effect was minimal — shares rose to $31.46 (up 4.5%) after the announcement of Riccitiello’s retirement, before falling back to previous levels.

In contrast, AppLovin has been performing well in the stock market recently. Its shares have increased by nearly 270% to $39.69 per share since the beginning of the year. This is also a slight increase from August 2022 when the company announced its intent to acquire Unity.

Following the Runtime Fee rollout, AppLovin also launched a free AI tool to help developers migrate from Unity to other engines. Not to mention that many mobile developers and publishers, including the likes of Voodoo and Azur Games, decided to ditch Unity and ironSource monetization as a protest against per-install fees, and AppLovin might be interested in luring some of these high-profile customers to its own platform.

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