Tel Aviv-based IronSource, Israel’s largest internet company, is in advanced talks to be sold to a Chinese technology firm, TheMarker has learned. According to an industry source, IronSource is valued at some $1.8 billion in the talks, but the figures are not final.
CEO Tomer Bar-Zeev said IronSource would not comment, but a quick deal would make it the second major Chinese purchase of an Israel-based company in days after gaming firm Playtika said a consortium of Chinese companies was buying the operations of the company — which is owned by U.S.-based Caesars Interactive Entertainment — for $4.4 billion.
IronSource’s main product, InstallCore, is a service enabling software downloads on desktop computers, but the company is involved in products for app developers, device makers and more.
In September, IronSource, which was founded in 2010, merged with Israeli firm Supersonic in a deal reflecting a combined valuation of $1.2 billion to $1.3 billion by industry estimates. It created Israel’s biggest internet company as measured by workforce, valuation and revenue. The annual revenue of the merged company is thought to be around $450 million.
Before the merger, the founders of IronSource collectively held a 75% stake in the company. They include Bar-Zeev and brothers Eyal, Itay and Roi Milrad. They were joined by entrepreneurs at companies that IronSource acquired early on: Tamir Carmi, Omer Kaplan, Arnon Harish and Nethanel Shadmi. Supersonic was founded by Arik Czerniak and Gil Shoham.
The value that Supersonic received in the merger was an estimated $150 million to $200 million. The owners received shares in the merged firm and some cash. A year before the merger, Supersonic raised $15 million based on a company valuation of about $100 million. The merger created a company with about 800 employees, around 600 of them in Israel.
Supersonic has an advertising platform for mobile apps in video format or as a banner that appears to be an integral part of the application. The company is developing an advertising management system and an exchange for the sale of advertising space in real time.
An acquisition now of IronSource by a strategic player in the same sector would provide liquidity to the owners of IronSource. One of the main challenges facing the company has been how to enable its current owners, which include venture capital firms such as Carmel Ventures and Tal Barnoach’s Disruptive Fund, to derive the benefits of their holdings and spur the company to further growth.
The main options that they have had before them have been an initial public offering or to have the company acquired by an investment fund or strategic firm. IronSource would have been expected to encounter problems in an IPO. On the other hand, it would be only a minority of American tech firms that might possibly be interested in purchasing the company.
A possible IPO and listing on the Nasdaq exchange has apparently not appeared in the cards because American investors are not attracted to its sector of the industry. But Chinese firms with a lot of spare cash have been active recently in snapping up companies and investing in sectors that may be seen to be on the margins of the internet field, such as IronSource. From that standpoint, a merger with a Chinese strategic partner in the field would provide investors with an exit and allow the company to develop in new directions.
In 2013, IronSource was on the verge of a merger with translation software firm Babylon Software, but the merger was never completed and instead the company continued to grow through acquisitions of its own. Other investors in the company include Len Blavatnik, Saban Capital Group, Leumi Partners and two Chinese firms, Pin An Ventures and China Venture Capital.
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