Web.com, a provider of internet services and online marketing for small and medium‐sized businesses (SMBs), has agreed to acquire the privately‐held Network Solutions, one of the largest domain name registrars focused on SMBs.
The takeover means Web.com has the opportunity to create the largest online marketing solutions company focused on the $19 billion web services market for SMBs. Currently the two companies have approximately three million paying subscribers more than nine million domains under management and more than 1,900 employees worldwide. The acquisition follows last month’s private equity buyout of Go Daddy, the world’s largest registrar.
“Shares of Web.com rose nearly 30 per cent after hours following the announcement of its largest acquisition to date,” reported Reuters. “The company had a market capitalisation of $251.72 million at Wednesday’s close.”
Under the terms of the agreement, upon the closing Web.com will pay Network Solutions $405 million in cash and issue 18 million shares of Web.com common stock, in addition to refinancing existing net debt of Network Solutions and paying certain fees. Network Solutions is currently majority owned by General Atlantic LLC, a leading global growth equity firm.
“This transaction represents a unique opportunity to dramatically expand our scale, add further momentum to Web.com’s already improving top line growth, and further expand our market share as the nationally recognised go‐to provider of online marketing solutions specifically tailored to small and medium‐sized businesses,” said David Brown, Chairman and CEO of Web.com. “Our integration strategy will be similar to our successful acquisition of Register.com, and we will be in a strong position to crosssell and up‐sell our services to Network Solutions’ approximately two million retail customers and hundreds of thousands of wholesale customers. We believe this combination will provide significant long‐term shareholder value as we grow our business, capitalise on synergies, improve our margins and generate substantial cash flow to invest greater resources in growth and branding initiatives.”
“The acquisition of Network Solutions immediately delivers enormous scale to Web.com and better enables us to capitalise on the significant shift from traditional marketing channels to online marketing as mass adoption by SMB’s continues. Small and mid‐sized businesses are increasingly looking to leverage the growing adoption of online local search, social media and mobile devices to grow, and they need cost‐and time‐efficient help. No other company has the combination of products, services and experience to help small and medium businesses as effectively as Web.com. Our combined organisation will have far greater resources to market our end‐to‐end suite of solutions, in addition to using the power of a national brand for the first time in our history,” Mr. Brown continued.
Anton Levy, a Managing Director of global growth equity firm General Atlantic, the principal stakeholder in Network Solutions, said, “As growth investors, we are very excited to participate alongside other Web.com stockholders in its exciting strategy to be the web services and online marketing resource for SMBs. With this transaction, Web.com wins the race to scale, which is critically important at this moment in the shift to online marketing by small and medium‐sized businesses.”
Tim Kelly, CEO of Network Solutions, stated, “Network Solutions has been a pioneer in this industry for nearly 30 years. We are very excited to combine our expertise, resources, customers and award winning customer service with Web.com. Our combined company will have tremendous know‐how and a broad portfolio of online marketing, web services, social media and mobile solutions to help small businesses grow in the increasingly connected online world. For Network Solutions and Web.com, we will be positioned to capitalise on the more than $19 billion online services market for small and medium businesses in ways that neither company could do efficiently on a standalone basis.”
The transaction, which is subject to Web.com shareholder approval as well as customary regulatory approvals and closing conditions, is expected to be completed in the fall of 2011. At the close, General Atlantic and other current Network Solutions shareholders are expected to own approximately 37% of Web.com. In addition, as part of the acquisition agreement, Mr. Levy will join the Web.com board of directors.
The transaction will create a leading end‐to‐end online solutions company with a clear path to $500 million in non‐GAAP revenues as it focuses on providing web services to SMBs, a market estimated to be larger than $19 billion. Web.com believes its combined company will be positioned to deliver non‐GAAP revenue growth in the low teens, with non‐GAAP earnings per share and unlevered free cash flow growth in the mid‐teens to 20 percent range over the next three to four years as revenue and cost synergies are realised. In particular, under current debt pricing terms, the transaction is expected to be at least 20 percent accretive to the $1.22 per share current First Call consensus estimate for 2012, with significantly greater accretion in 2013.