The rumors about a race to buy IronSource have already appeared last summer. The reports mentioned $1.8B dollars as a possible price tag to the giant applications distribution engine. The founders fiercely denied any such negotiation, although they didn’t deny being chased by Chinese firms.
But the chase after IronSource continues, as yesterday a few media outlets reported that two Chinese private equity firms, CDH and ZZ Capital, are bidding the company. This time, the press mentions a lower price tag of one billion dollars.
IronSource valuated at $750M-$1,350M by Zirra.com
So how much is IronSource really worth? And how is that possible that bidders price the company with totally different values. Zirra, a startup company that has developed AI and machine learning technology to analyze the private tech market values IronSource at $700M-$800M currently and at about $1.3B-$1.4B in the case of an exit. Zirra’s algorithm supports the press claims that the company is about to be acquired soon (according to the press it is planned for the beginning of 2017). Zirra estimates IronSource to go to exit in the next 1-2 years at a probability of 50%-60%. Click here to read Zirra’s brief and insightful analysis on IronSource.
Iron Rush to China
IronSource is an online software distribution and monetization technology powerhouse providing a complete suite for desktop and mobile app developers. In few a clicks, app developers can get a full stack service of distribution, advertising, and monetization suite, allowing them to maximize their reach.
Tomer Bar-Zeev, CEO of IronSource
The company grew thanks to its distribution engine for desktop applications, encouraging billions of users to download anti-virus software, utilities, and games. later it added a mobile distribution suite and last year it acquired Supersonic, a video advertising platform inside mobile apps. Supersonic was merged into IronSource for $150 million in cash and stocks, in a deal that valued IronSource at $1.1 Billion.
The Supersonic deal brought IronSource to control 40% of all mobile video advertising market, but also broadened its foothold in the Silicon Valley and to China. Today, Iron serves the “BAT trinity” in China: Baidu, Alibaba, and Tencent, in addition to Qihoo 360 and Cheetah Mobile.
The BAT gang: CEOs of Baidu, Alibaba, and Tencent
The Chinese market adopted IronSource. The Israeli giant became a popular distribution powerhouse to many of China unique apps and games.
With the help of Chinese software developers, IronSource could also reach 400 million dollars in revenue and become one of the giant exporters of Chinese apps outside of the continent. Now, Chinese conglomerates could flood western markets with their games, thus breaking the “Chinese Walls” of the local industry. The acquisition of Supercell and Playtika earlier this year for billions have shown the Chinese appetite for control over worldwide apps publishers, so it is only natural to assume they would like to hold the other end of the stick, which is distribution.
Striking while IronSource is still hot
The supersonic deal brought not only the Chinese market to IronSource but also a pack of shareholders willing to liquidate their shares. The original investors in Supersonic: Greylock Israel (changed their name to 83North and SAIF partners sold a company but hadn’t seen much cash from it.
IronSource is a company controlled by its founders (who holds 70% of the total shares) that could, theoretically, control the company for many years to come. That said, it is always a question of risks and prospects.
Right now it seems there are more reasons that can support a sale rather than oppose it, and that might have led Zirra algorithm to value the company at less than a $1B. These factors as a whole, together with an investors push for liquidation, facilitates a faster exit than expected.
Regulatory Environment: IronSource is restricted by Google and Microsoft’s policy towards software distribution. Google has twice mentioned IronSource’s brands in its academic researchers focusing on ad injectors and pay-per-install networks. Dealply, one of IronSource’s brands that were mentioned in a Google research had to re-brand as Buynando.
IronSource is white-hat player in the field, working closely with both Microsoft and Google. It plays a fair game but still, it is too dependant on the rules dictated by others.
Worsening Conditions for an Exit: IronSource aspired to go to an IPO but shelved the plan due to harsh conditions in the adtech market. The majority of adtech companies that had gone public in the recent years are undervlaued. The tech giants such as Google and Facebook as well lost interest in managing large M&As in the field, abandoning adtech to future areas such as automotive, AI, mixed reality and robotics.
Fraud in advertising cooled the industry: The American Association of National Advertisers claims that overall, about 2 of every 3 clicks on ads are fraudulent. Bots are responsible for a quarter of total video ads watched, for 10% of banner exposure, and are estimated to affect as much as half of the total traffic bought by advertisers.
The total damage caused by click fraud is estimated at $8B yearly, ten times more than the damage done by adblockers. Ad fraud is a mighty industry, generating billions of dollars, that has come at the expense of advertisers. There fraud in the system cooled the industry as a whole.
IronSource headquarters, Tel-Aviv (first balcony on the left, as viewed from Zirra’s offices)