A senior executive in the ad-tech market, who knows Israeli app monetization developer ironSource (NYSE: IS) well, claims that the company had no choice but to find a merger. One of the reasons was the desire to keep its employees. "There were managers and employees that saw a great deal of money when ironSource was listed on Wall Street but many others did not. The promise to those employees was that the value of the company would rise to $13-14 billion, and then they would see money in the future," the source said.
"But it was now clear that even though the financial data of ironSource were very good, the employees would have to wait at least two to three years, for a return, perhaps, to such a valuation," the senior source added, "It was clear that many of the employees would not be ready to wait so long and would leave acrimoniously. You must create some sort of hope for an option for liquidity in the not so very distant future."
Even though the merger with Unity creates no liquidity at the moment, it does create a hope for it. The source says, "First of all the deal almost doubles the market value of ironSource here and now. My estimation is that ironSource understands that we are going into at least two years of stagnation and the new valuation they have received is a better starting point for the future. So that after the stagnation ends, their shares will be in Unity, which will be worth $15 billion."
In addition, ironSource has become part of something big, part of a company that is perceived in a positive way on Wall Street, on a large commercial scale. The advantage of Unity is that it receives multiples of a tech company that sells software as a service (SaaS) and not the lower multiples of a media and advertising company like ironSource."
In the opinion of this senior executive, in the current situation on the market, being an advertising and distribution company like ironSource simply isn’t enough. "The game today is against Google and Facebook, which are both advertising empires and also a lot of other things, so it is difficult for a company to compete with them. This move makes Unity something much larger and causes other rivals in the market, and even Facebook and Google, to rethink their way ahead against the monster that has been created here. To the credit of ironSource, it can be said that it is a company with several genuine revenue and profit streams, and that helped them get, justifiably, a higher price than their share price."
"Not an acquisition but another stage in maturing
ironSouce’s management, sources have told "Globes," "Dug in their heels," with Unity’s senior management that the merger deal would be in shares, with no cash component. ironSource’s management believed that in this way the Israeli company’s shareholders and employees would receive in the future a significant upside. A source close to the company said, "The shareholders had reached the conclusion that it was preferable to hold 25% of a giant company than to control a medium-sized company." The hope is that the joint value of the two companies which stands at $13 billion will double or more within two years.
Of course whoever had invested in ironSource when the SPAC merger was completed last year has lost 70% of their investment but the rest of the shareholders, the founders and employees still hold shares and are enjoying the current valuation, which is still higher than before the company went public - when the CVC fund invested in 2019, the company received a valuation of $1.5 billion.
Despite the fact that for the first time since the company was founded more than a decade ago, the management has lost control of the company, it will receive a major role in the merged company. Its three representatives on the board of directors will be a quarter of the board while ironSource CEO Tomer Bar Zeev becomes president of the merged company.
In the merger between them, ironSource will benefit from Unity’s development environment, which currently serves 72% of game developers, while the US company will benefit from the dominance of the Israeli company in advertising and creating revenue from games. Sources close to ironSource say that this has not been an Israeli company acquired by a foreign company but another stage in maturing and becoming a significant part of the world’s largest games development platform.
Published by Globes, Israel business news - en.globes.co.il - on July 15, 2022.
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