Shares of ironSource (NYSE:IS) stock are up nearly 50% today on news that Unity Software (NYSE:U) will acquire the software company in an all-stock transaction worth $4.4 billion. Both software companies expect the deal to be completed by the end of the year.
Based in Israel, ironSource is a software developer with a proprietary app monetization platform. This platform is used for advertisements and cross-channel marketing. Meanwhile, California-based Unity Software focuses primarily on games and other interactive content.
Even with today’s rise, IS stock is still down nearly 60% year-to-date (YTD). Shares currently trade near $3 per share. Likewise, U stock is down 76% YTD, trading closer to $34 per share.
What’s Happening With IS Stock?
The ironSource purchase will see two of Unity’s largest shareholders — Silver Lake and Sequoia — invest $1 billion in the company via convertible notes after the transaction closes. Once finalized, the combined company “is expected to generate a run rate of $1 billion in Adjusted EBITDA by the end of 2024.”
This deal will bring together interactive development and app monetization within Unity Software and further diversify the company’s offerings. In recent months, U stock shareholders have pressured the company to grow and diversify in order to boost its finances and struggling share price. In addition to announcing the ironSource acquisition, Unity’s board has authorized a share buyback program of $2.5 billion. The program will go into effect once the transaction closes.
Why It Matters
Unity’s acquisition of ironSource comes as both company’s share prices fall dramatically this year amid the market selloff. On top of the deal news, Unity Software is also reducing its full-year revenue guidance to a range of $1.3 billion to $1.35 billion. That’s down from the previously estimated range of $1.35 billion to $1.43 billion. Investors and analysts typically view lowered guidance negatively.
That in mind, the ironSource acquisition could help boost the U stock share price and Unity’s finances near-term. The deal could also help appease angry shareholders who have watched U stock fall more than 70 % over the past six months.
Longer-term, Unity will have to find a way to turn around its struggling finances and regain analyst and investor confidence. Per Yahoo! Finance, 18 analysts covering U stock give it an average price target of $65.50. That implies more than 90% upside from current levels.
What’s Next
IS stock is moving higher today on the acquisition news. Overall, the deal is a positive development for ironSource; shares have been trading in penny stock territory lately, going nowhere fast. For Unity Software, however, time will tell if the purchase pays off for the company and its shareholders.
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On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
