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For IS shareholders, this transaction may be dilutive from a valuation perspective but on the other hand, U is more likely to get a premium multiple - so this is also a trade up on a risk-reward perspective. U is trading at only 7x sales in spite of having a 30+% growth engine over the long term.
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Sure, IS is cheaper here than U on an EBITDA multiple basis, but U isn’t more expensive on a price to sales basis. In this case that isn’t hard - U stock itself is down even more than IS. But one must always take the broader market into context here. Indeed, with the stock down 70% since it came public via SPAC, perhaps some IS shareholders felt almost betrayed by management. Some IS shareholders have voiced their disappointment. It is possible that the spread widens in the event of volatility, but due to the low regulatory risk, I wouldn't hold my breath.Īt the $4.4 billion purchase price, U would be acquiring IS at 7.1x trailing sales and 21x trailing adjusted EBITDA - rather discounted multiples for a profitable company growing at a 30+% clip.
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At present, there remains around a 5% arbitrage spread (that is the potential excess return you could earn by owning IS over U). At the time, it reflected a 70+% premium to where IS traded prior to the deal. The deal calls for every share of IS to receive 0.1089 shares of U. We can see below that this deal has few overlaps and adds much functionality for U - I don’t see significant risk of regulatory intervention here. Unity-ironSource Transaction Presentation This marriage combines a leader in development with a leader in monetization. U had previously lowered its guidance due to issues with monetizing ads. IS helps immediately fix U’s problem: monetization. How Will The Acquisition Impact IS And U Stock? U announced the acquisition on July 13th and stated that it expects the acquisition to close in the 4th quarter.
#Unity stock price software
When Is Unity Software Acquiring ironSource? While IS stock plunged hard amidst the crash, its fundamentals remained strong - that is why it was one of the stocks named in my Tech Stock Crash List provided for subscribers. I note that the company has $441 million of net cash on its balance sheet and has minimal capital expenditure requirements, making adjusted EBITDA a more reliable metric (indeed the company did generate positive GAAP net income).įor the year, IS had previously guided for up to 41% revenue growth and 32% adjusted EBITDA margins. Adjusted EBITDA stood at 31% of revenues in the latest quarter. While IS is a former SPAC and its plunging stock price is not too dissimilar from other de-SPACs, it has differentiated itself from other SPACs through its resilient growth rate as well as its solid profit margins. Most of that growth came from an impressively strong dollar-based net expansion rate of 153%. In its latest quarter, IS showed 58% top-line growth. There still remains some arbitrage upside left even with the stock up over 70% from the lows. The stock has since run-up to around $3.70 per share as investors have sought to take advantage of the takeover premium. The stock bottomed at $2.20 per share, basically right before the acquisition announcement. IS peaked above $13 per share just prior to the tech crash. While the stock prices might not reflect it, IS (and U for that matter) remain secular growth stories priced at compelling valuations. In this report I discuss how IS shareholders should view the deal and whether the stock is still a buy ahead of the closing of the acquisition. The deal came after both stocks crashed amidst a generational weakness in the broader tech sector. On July 13th, ironSource ( NYSE: IS) announced that it was being acquired by Unity ( NYSE: U) for $4.4 billion in an all-stock transaction.