TBA Thoma Bravo Advantage

By Parmy Olson 

Pandemic demand for videogames and consoles has lifted share prices for game developers and their suppliers. Now, investor enthusiasm is permeating deeper into the plumbing of the global game industry.

Israeli startup ironSource Ltd., which provides advertising services for app-based game developers such as Activision Blizzard Inc., agreed on Sunday to merge with a special purpose acquisitions company, or SPAC, in a deal that will take it public, valuing it at $11.1 billion.

A string of game companies have sought to tap public markets as lockdowns have driven demand for in-home entertainment. Shares of Roblox Corp., a popular videogame platform for children, soared in their public debut this month. Shares in Playtika Holding Corp., an Israeli game developer that makes social casino games such as "Caesars Slots" and "Poker Heat," jumped in its market debut in January. Discord Inc., a chat service popular with gamers, roughly doubled its valuation, to $7 billion, in a funding round late last year.

The surge in demand for games has benefited larger tech companies, too. Sony Corp. said its operating profit for the quarter ended in December rose 20% thanks to growth in its games divisions. Its shares are up 103% in the past 12 months.

Microsoft Corp. recently posted record quarterly sales, helped by stronger demand for videogames and the release of next-generation Xbox consoles.

Activision shares have shot up 63% in the past 12 months. Electronic Arts Inc. stock is up 38% in the past year, while Zynga Inc.'s shares have risen 60%.

Surging demand for games has been a mixed blessing for some. A global shortage of computer chips, fueled in part by the sharp increase in demand for games and the graphics chips that power them, has hampered global production of smartphones and game consoles such as Sony's PlayStation.

App-based games -- different from those played at home on personal computers or consoles -- have also boomed. Global spending on videogame software surged 20% in 2020, to $175 billion, according to industry tracker Newzoo BV. Mobile games made up about half of last year's spending, it found. Of the $143 billion consumers spent on apps last year, $100 billion went to games, according to market intelligence firm App Annie.

IronSource makes games, too, including the popular mobile puzzle game "Sort It 3D." But its main business is connecting app makers, particularly those in games, with advertisers. The company says its system is used by 87% of the top 100 most downloaded mobile games, including Activision's "Candy Crush Saga" and the mobile edition of its popular "Call of Duty" franchise. It also counts Zynga, the maker of "Words With Friends," as a client.

IronSource sells analytics tools to app developers, allowing them to see how people are using their app -- for instance, how often they open the app and which ads they are spending the most time on. The app makers can also use the service to integrate various mobile advertising networks, such as Google's AdMob, into their apps. That network will then show ads to users.

IronSource says its services help an app maker determine which of several competing ad networks would be most appropriate, and lucrative, for any individual app. It could, for instance, recommend networks that provide video ads and "playables," demos of games that users play inside other games. IronSource takes a cut of revenue from the ads.

Playables are a relatively nascent ad technology. Here is how they work: If a player of "Call of Duty: Mobile," a first-person shooter game, wants to buy new weapons but doesn't have any in-game currency, the player can opt to play a 30-second demo of another game inside "Call of Duty." That demo earns the player in-game currency.

IronSource said it recently started providing technology that can automate the creation of such minigames and calibrate how challenging they are. If a user installs the game after trying it out in a playable, the game maker behind the demo pays "Call of Duty"-maker Activision, through ironSource. IronSource takes a cut of that revenue.

As part of its deal to go public through a SPAC, ironSource said 2020 revenue grew 83% over the previous period, to $332 million. It said it expects to have approximately $740 million of unrestricted cash once the deal is completed.

IronSource's merger deal is with Thoma Bravo Advantage, a SPAC that trades on the New York Stock Exchange under the symbol TBA. Tiger Global Management LLC and Wellington Management Co. are investing in the deal.

The SPAC was formed by individuals affiliated with Thoma Bravo LP, a private-equity firm focused on software investments and co-founded in 2008 by Puerto Rican billionaire Orlando Bravo.

SPACs are shell companies that raise money in a public offering and then look for a private firm to acquire. They have exploded in popularity as a quicker route for companies to go public, without many of the constraints of a traditional IPO.

Write to Parmy Olson at parmy.olson@wsj.com

(END) Dow Jones Newswires

March 23, 2021 13:47 ET (17:47 GMT)

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