IronSource confirmed a recent report from Bloomberg and announced over the weekend that it has agreed to merge Thoma Bravo advantage (NYSE: TBA), a special purpose vehicle (SPAC) formed by the famous private company of the same name.
The SPAC went public in January through a traditional IPO so it could identify its target and negotiate a deal relatively quickly.
Here’s what investors need to know.
Why ironSource is growing with the app economy
ironSource is a leading platform that helps mobile developers monetize their apps (usually games) and content, mainly with advertising, while providing other services such as sales or analytics.
The company was founded in 2010 and has now grown to over 750 employees. ironSource also offers services for telecommunications operators, such as T-Mobile (NASDAQ: TMUS), device lifecycle management and activation of pre-installed apps to drive engagement.
There are now 2.3 billion monthly active users (MAUs) in all apps and games that use the ironSource platform. ironSource supports several prominent titles including Call of Duty: Mobile and candy Crush Saga, both made by the game giant Activision Blizzard (NASDAQ: ATVI).
ironSource already has a significant revenue base that grows with a healthy clip. Revenue soared 83% to $ 332 million in 2020, while the company’s US dollar-based net expansion rate, which measures revenue growth among existing customers, was an impressive 149% at the end of last year.
There are nearly 300 customers, each with over $ 100,000 in annual sales, and this important cohort of celebrity customers makes up 94% of total sales. Fortunately, ironSource has a strong bond – 97% – of these large customers.
Adjusted EBITDA was $ 104 million last year, which translates into an adjusted EBITDA margin of 31%. The company’s long-term goal for this profitability metric is 40%.
How to Own ironSource Today: Thoma Bravo Advantage (TBA)
The agreement with Thoma Bravo Advantage values ironSource at a whopping $ 11.1 billion post-money value, making it one of the larger SPAC deals in recent times.
The SPAC has approximately $ 1 billion in cash in its escrow, and Thoma Bravo has received an additional $ 1.3 billion from institutional investors participating in PIPE (Private Investment in Public Equity). According to SPAC, the PIPE deal was oversubscribed, suggesting that investor interest was strong.
That means all cash proceeds will be $ 2.3 billion, but most of that money ($ 1.5 billion) will be used to purchase equity from existing ironSource shareholders. With all said and done, ironSource will receive $ 700 million in cash, which will be included on its balance sheet. The company has $ 740 million in unrestricted cash upon completion of the deal.
The public shareholders of SPAC will end up owning around 9% of the combined company, provided there are no redemptions. ironSource plans to maintain its two-class capital structure after the merger in order to consolidate voting rights among the company’s insiders.
Investors don’t seem too excited about the deal as Thoma Bravo Advantage stock has barely moved on the news and is trading below $ 11 as of this writing. However, if you’re looking for high-growth companies in the app economy, ironSource could be a fascinating company to keep on a watchlist.
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