In a hot press release from this morning, it was revealed that AppLovin (NASDAQ:APP) expressed interest in combining with Unity Software (NYSE:U). The estimated enterprise value of this deal would be $20 billion. It’s huge news for both companies, as the business combination would create a software-industry giant. U stock is in the green today, but interestingly, APP stock declined sharply.
Unity Software’s market capitalization is $15, while AppLovin’s is between $13 billion and $14 billion. Yet, the latest development is that AppLovin apparently wants to “combine with” — or really, take over — Unity Software.
To be more precise, AppLovin announced it has submitted a non-binding proposal to Unity Software’s board of directors, to combine the two companies. Unity’s common stock shares would, according to the terms of the proposal, be exchanged for AppLovin common stock shares. So basically, it’s a takeover bid.
The all-stock merger, if it goes through, would have a whopping $20 billion enterprise value. It would create a huge platform for app developers, as well as a fierce competitor in the software market overall.
What’s Happening with U Stock?
It’s not unusual for a potential buyer to lose value in the short term while the takeover target gains value. Thus, by 11:00 a.m. Eastern today, U stock was up a couple of percentage points while APP stock was down 10%.
Again, this is a short-term market response and there may be a reversal/retracement over the coming days. Also, note that there hasn’t officially been a merger deal yet. At this stage, it’s only a proposal.
If the takeover deal goes through, however, it could produce a financial powerhouse. AppLovin CEO Adam Foroughi asserted that the combined business “would generate an estimated run-rate adjusted EBITDA of over $3 billion by the end of 2024.”
Moreover, AppLovin estimates the proposed business combination will create more than $700 million of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) from synergies in 2025. Clearly, AppLovin’s management would be glad to see the Unity Software merger happen sooner rather than later.
For today, though, the bullish sentiment on Wall Street is leaning toward U stock rather than APP stock. The best thing to do, then, is to keep your eyes peeled for further developments in this potentially impactful proposed merger of two software standouts.
On the date of publication, David Moadel did not have (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.