Jun, 2010 : Web.com Announces Agreement to Acquire Register.com

📅 June 17, 2010 - Acquisition to create one of the largest online marketing and web services companies serving small businesses.

Web.com, Inc., a web services provider, today announced that it has entered into an agreement to acquire Register.com, an ICANN accredited domain registrar. Under the terms of the agreement disclosed by the company, which is subject to standard closing conditions, it will pay $135 million and will finance the purchase through a combination of cash and long-term debt.

The company explains that both the companies have a broad suite of solutions and expertise to help their small business customers maximize their presence and opportunity on the Web. Both companies utilize a comprehensive customer acquisition strategy, including call centers, direct marketing, search engine marketing and channel partners. Register.com's domain name expertise, large base of channel partners, direct marketing experience and proven cross-sell/up-sell methodologies are expected to improve the combined company's ability to capitalize on the significant small business market opportunity.

It avers that the addition of Register.com will increase its subscriber base significantly, and creates an opportunity to cross-sell value-added solutions to each of their respective customer bases.

The company further explains that its management expects the combined company to generate over $36 million of pro forma adjusted EBITDA during 2010, which assumes Register.com's results are included for the full year 2010. It currently expects the transaction to close in the third quarter, and it anticipates that the transaction will be immediately accretive to the company's non-GAAP EPS. Management expects the level of accretion to start off at a modest level initially as the company will have just begun implementing its identified cost savings initiatives, before ramping significantly in 2011 as the company increasingly realizes the over $10 million in annualized pre-tax cost savings potential for the combined operations.

It states that Non-GAAP EPS and adjusted EBITDA excludes stock-based compensation expense; amortization of intangibles associated with acquisitions, including the acquisition of Register.com; restructuring charges and other non-recurring transaction fees associated with the Register.com transaction; and the purchase accounting reduction to Register.com's deferred revenue balance.

The company further states that its management expects to increase the effectiveness of its sales and marketing investments as a result of its greater scale and the increased buying power of the company's overall program. In addition, it plans to reinvest a portion of the acquisition related cost synergies into sales and marketing programs that are targeted at growth initiatives such as customer acquisition and cross-sell/up-sell to the combined company's base of over 1 million subscribers.

It adds that RBC Capital Markets and Wells Fargo Securities acted as financial advisors and Cooley LLP acted as legal counsel to the company. GCA Savvian Advisors, LLC acted as financial advisor and Shearman & Sterling LLP acted as legal counsel to Register.com.

David Brown, President & CEO of Web.com, stated, "We are very excited to announce our agreement to acquire Register.com, which will bring highly complementary products, sales channels and operating capabilities to Web.com. Register.com has over 800,000 subscribers, which represents a substantial cross-and up-sell opportunity for Web.com. Additionally, small businesses signing up for domain name services have been one of Web.com's most effective lead generation sources, making Register.com's core competency in this area a perfect match for driving increased adoption of Web.com's suite of online marketing and web services solutions."

Brown added, "The acquisition of Register.com will be a transformative event for Web.com as we expect to expand our non-GAAP revenue base by over 80% and more than double our adjusted EBITDA run rate after realizing cost synergies that have already been identified. In addition to expecting a meaningful, positive impact on our non-GAAP EPS, Web.com's significantly enhanced scale and cash flow will provide the company with far greater resources to invest in sales and marketing programs to drive long-term growth."

Kevin Carney, CFO of Web.com, stated, "We believe the Register.com transaction will be highly rewarding for Web.com's shareholders. We have the opportunity to significantly increase our non-GAAP EPS and create a much larger company that generates more than twice the level of adjusted EBITDA. We are highly confident in the combined company's ability to service our debt over the next several years based on Web.com and Register.com's high level of profitability and cash flow, combined with our expectation of reducing the combined company's expense structure by over $10 million annually."

Larry Kutscher, CEO of Register.com, stated, "Register.com provides essential tools that small businesses need to build and manage their online presence, which is a perfect complement to Web.com's focus on providing high-value add online marketing solutions. Today's announcement is a significant event for our customers and prospects as our combined company will have a unique combination of scale, product breadth and distribution to address the $10 billion online services market for small businesses."