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3D world builder Unity offered $17.5bn takeover deal

Game engine developer receives takeover bid from app monetisation platform AppLovin.

By Ryan Morrison

Unity, a game engine developer whose platform is increasingly used in virtual reality and the metaverse, has been offered a $17.5bn takeover deal by US mobile app monetisation platform AppLovin.

The deal follows changes to Apple’s privacy settings that have triggered a 20% decline in mobile advertising spend. The combination of Unity’s audience reach and AppLovin’s AXON ad targeting platform would help the combined company offer “more value to app developers”, AppLovin said of the proposed deal.

A screenshot from Pokemon Go, developed using Unity's game engine.
Pokemon Go is among the popular mobile games developed using Unity’s engine. (Photo courtesy of Niantic).

AppLovin offered Unity $58.85 per share leaving Unity shareholders with 55% of the combined company’s outstanding shares and 49% of voting rights. Under the plan, Unity CEO John Riccitiello would run the combined company with AppLovin CEO Adam Foroughi becoming COO.

The Unity board says it will consider the deal but wouldn’t be drawn on the details during a recent earnings call.

What is Unity?

Unity is a game engine used by developers to create 2D, 3D and virtual reality content for platforms including desktop, mobile, console and virtual reality headsets. It was used to create some of the world’s most popular video games, including Pokemon Go and Call of Duty, but is also used for business applications such as architectural visualisation.

More recently, Unity has become a popular tool for creating virtual worlds for the metaverse including Gaia Everworld, The Sandbox and Decentraland. These blockchain-based projects also have a cryptocurrency token attached for use in the world.

Founded in 2012, AppLovin provides services to help mobile app developers grow their business through advertising, marketing and AI-driven analytics. The company has been on a buying spree recently, purchasing mobile app measurement company Adjust in February 2021 and mobile monetisation platform MoPub from Twitter for $1.1bn last year.

“Over the last decade we have built and operated a leading and innovative company in mobile app marketing and monetisation solutions,” said AppLovin’s Foroughi in announcing the offer. “Unity is one of the world’s leading platforms for helping creators turn their inspirations into real-time 3D content.

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“With the scale that comes from unifying our leading solutions and innovation that would be achieved with the combination of our teams, we expect that game developers would be the biggest beneficiaries as they continue to lead the mobile gaming sector to its next chapter of growth.”

Mobile ad disruption

The mobile app ecosystem has been disrupted by recent changes to Apple’s privacy settings, which now require app developers to request explicit permission from users if they want to track usage data across multiple apps on the device.

Just 21% of iPhone users have opted into third-party tracking, according to app analytics provider Flurry, despite efforts by developers to explain the benefits. Apple’s privacy update has triggered a 40% drop in the ROI for mobile ads, according to a survey by mobile measurement provider Tenjin, and a 20% drop in advertising spend.

AppLovin’s AXON is a proprietary machine learning platform that uses ad interaction data from across its network to target relevant ads to app users. “Unity’s audience reach through games built on Create Solutions paired with AppLovin’s powerful AXON machine learning engine will create material efficiency gains for the combined growth platform, leading to revenue gains, but even more importantly facilitating materially more value to app developers,” a spokesperson for AppLovin said.

The proposed merger comes as Unity struck a deal to create a new joint venture with multiple Chinese partners worth $1bn for the Chinese arm of its business. These partners include Alibaba, China Mobile, Douyin Group and PCI. Unity will retain majority ownership and overall control of the Chinese joint venture named Unity China which will develop a local custom version of its core game engine for products and services in China.

Read more: Virtual worlds, real money: Why big business is investing in the metaverse

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