ironSource is Going Public in a Massive $11 Billion SPAC Deal

Confirming a recent report from Bloomberg, ironSource announced over the weekend that it has agreed to merge with Thoma Bravo Advantage (NYSE: TBA), a special purpose acquisition company (SPAC) set up by the famed private firm of the same name.

The SPAC had gone public through a traditional IPO in January, so it was able to 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, primarily with advertising, while also providing other services such as distribution or analytics.

The company was founded in 2010 and has now grown to over 750 employees. ironSource also provides services to telecommunications operators such as T-Mobile (NASDAQ: TMUS), managing device lifecycles and enabling pre-installed apps to bolster engagement.

There are now 2.3 billion monthly active users (MAUs) across all of the apps and games that are leveraging ironSource’s platform. ironSource helps power several prominent titles, including Call of Duty: Mobile and Candy Crush Saga, both of which are made by gaming giant Activision Blizzard (NASDAQ: ATVI). 

ironSource already has a meaningful revenue base that is growing at a healthy clip. Revenue jumped by 83% in 2020 to $332 million, while the company’s 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 that generate over $100,000 in annual revenue each, and this important cohort of prominent customers represents 94% of total sales. Fortunately, ironSource has strong retention — 97% — of these large customers.

Adjusted EBITDA was $104 million last year, good for a 31% adjusted EBITDA margin. The company’s long-term target 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 post-money valuation of $11.1 billion, making it one of the larger SPAC deals in recent memory.

The SPAC has approximately $1 billion in cash in its trust account, and Thoma Bravo has also secured an additional $1.3 billion from institutional investors participating in the PIPE (private investment in public equity). The SPAC says that the PIPE deal was oversubscribed, suggesting that investor interest was strong.

That means total cash proceeds will be $2.3 billion, but most of that money ($1.5 billion) will be used to buy equity from existing ironSource shareholders. After everything is said and done, ironSource will receive $700 million in cash that will go on its balance sheet, with the company having $740 million in unrestricted cash after the deal closes.

The SPAC’s public shareholders will end up owning around 9% of the combined company, assuming no redemptions. ironSource plans to keep its dual class capital structure after the merger, which is designed to consolidate voting power among company insiders.

Investors don’t seem very enthused by the deal, as Thoma Bravo Advantage shares have barely budged on the news and are trading below $11 as of this writing. However, if you’re looking for high-growth companies in the app economy, ironSource could be an intriguing company to keep on a watchlist. 

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