On Tuesday, AppLovin Corp made an offer to buy peer Unity Software in a US $17.54 billion all-stock deal to tap into growing demand for three-dimensional gaming.
Both companies make software used to design video games. Game-making software has also been expanding to new technologies such as the so-called metaverse, or immersive virtual worlds.
Unity's software has been used to build some of the most-played games such as Call of Duty: Mobile and Pokemon Go, while AppLovin helps developers grow and monetize their apps.
For each Unity share, AppLovin will offer US $58.85, which is a premium of 18 per cent to Unity's Monday closing price.
Shares of Unity rose 7 per cent, while AppLovin fell 14 per cent before the opening bell.
According to the proposed deal, Unity will own 55 per cent of the company's outstanding shares, representing about 49 per cent of the voting rights.
The combined company will have the potential to generate an adjusted operating profit of over US $3 billion by the end of 2024, according to AppLovin Chief Executive Officer Adam Foroughi.
Unity is one of the world's leading platforms for helping people turn their inspirations into real-time 3D content, Foroughi said.
Palo Alto, California-based AppLovin went public last year, cashing in on the surge in demand for video games from people staying at home due to the COVID 19 pandemic.
The offer of AppLovin comes as game developers and console makers warn of a slowdown in the sector as decades-high inflation and easing COVID 19 restrictions lead to gamers choosing outdoor activities.