Unity Software, which provides technology to video game developers, sold shares above its expected price range in an initial public offering following an experimental process aimed at giving the company more power over its pricing.

Unity sold 25m shares at $52 a piece, according to two people briefed on the sale, raising $1.3bn. At that price it would have a market capitalisation of $13.7bn based on the number of shares outstanding. The shares start trading on the New York Stock Exchange on Friday.

The pricing comes after Unity increased the range marketed to investors from between $34 and $42 per share to between $44 and $48 per share on Wednesday. The company declined to comment.

Unity is best known for its game engine that developers use to create complex graphics. It has also branched out to other industries, selling the software to companies such as carmaker Volvo, that are looking to incorporate augmented and virtual reality features into their products. 

The company estimates that half of the top-1,000 mobile games on Apple’s App Store and Google Play were made using its platform, which has expanded to help game developers make money from advertising. “As gaming has proliferated, the business models for content have evolved beyond one-time purchases to include advertising and in-app purchases,” it said in a prospectus.

San Francisco-based Unity traces its roots to a Danish software business founded in 2004 and is led by chief executive John Riccitiello, who previously ran video game company Electronic Arts. The business made a net loss of $163.2m on revenues of $541.8m last year, which grew 42 per cent from the previous year.

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Unity’s IPO differed from the traditional process. Instead of leaving the pricing of its shares to bankers and a handful of investors, Unity solicited bids — with prices — through an online system managed by Goldman Sachs.

At the end of that process, Unity priced the offering above its expected range, allocating shares by hand to all investors that had expressed interest at that level, according to one person with knowledge of the process.

The IPO comes after Snowflake raised $3.4bn in the largest ever US listing of a software company. Shares in the company doubled on its trading debut, reflecting the bumper demand for technology stocks this year. Shares in JFrog, an Israeli software company which also listed on Wednesday, jumped 47 per cent.

Unity’s process could result in a relatively smaller first-day trading gain, advisers said, depending on how it priced and allocated the shares in its offering. The approach is one way to limit the first-day “pop” in the share price that occurs for some IPOs that can deliver big gains for investors, but means the company could have raised more by selling the same number of shares.

Sequoia Capital and Silver Lake were the biggest investors in Unity before the IPO, with Sequoia owning more than 24 per cent. Goldman Sachs and Credit Suisse served as lead underwriters.

Via Financial Times