Wednesday, August 03, 2011
Web.com (Nasdaq: WWWW), a leading provider of internet services and online marketing solutions for small and medium-sized businesses (SMBs), and privately-held Network Solutions, a leading provider of website services, online marketing and global domain name registration focused on the needs of SMBs, today announced the signing of a definitive agreement for Web.com to acquire Network Solutions.
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 realized. 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.
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 recognized 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 cross-sell 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, capitalize 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 capitalize 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 organization 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 capitalize 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.
Creates a market leader focused on small to mid-sized businesses
The combination of Web.com and Network Solutions will create a single company anticipated to have pro forma, combined non-GAAP revenue in the mid-$450 million range for 2011 and pro forma adjusted EBITDA of at least $120 million for 2011 before cost synergies and transaction expenses.
In addition, as of June 30, 2011, the pro forma combined company has:
–Approximately 3 million paying subscribers
–More than 9 million domains under management
–More than 1,900 employees worldwide
Both Web.com and Network Solutions utilize a high volume, multi-channel customer acquisition strategy that includes call centers, online and direct marketing, as well as distribution partners. Each markets a broad suite of solutions that include domain name services, web services, online marketing, eCommerce and other related solutions designed and delivered specifically for small and mid-sized businesses. With the infusion of Network Solutions’ two million retail customers and hundreds of thousands of wholesale customers, Web.com will have a tremendous opportunity to cross-sell and up-sell its online marketing, Facebook, mobile and web services offerings. In addition, Web.com’s current approximately one million subscribers will be offered a number of Network Solutions products and services that are complementary to Web.com’s product suite.
Enhanced Financial Profile
With the Network Solutions acquisition, Web.com is creating an increasingly attractive financial profile, characterized by greater scale and growth, a recurring revenue model, improved free cash flow margins and increased profitability margins.
Not only does the proforma combination reap the benefits of an immediate increase in scale, but Web.com also benefits from the customer profile of the Network Solutions customer base. A majority of Network Solutions’ customers are on multi-year contracts with upfront payment terms, resulting in significant free cash flow and contributing to customer churn rates that have been in the 0.5% to 1.0% per month range. As a result, both unlevered free cash flow as well as adjusted EBITDA will be important metrics for evaluating the performance of the combined company.
The combined company is expected to generate between $105 and 110 million in pro forma unlevered free cash flow and at least $120 million in pro forma adjusted EBITDA for the full year 2011 – before transaction costs as well as cost synergies. The combination of revenue growth and approximately $19 million in cost savings during the first full year of the combined organization is expected to contribute to $125 million to $130 million in unlevered free cash flow and more than $140 million in adjusted EBITDA for the combined company in 2012. In addition, the company expects to realize approximately $30 million in annualized cost savings by the end of 2013.
The much greater profitability and unlevered free cash flow of the combined company, combined with significant cost savings and operational efficiencies, will enable Web.com to make high ROI investments in growth initiatives. In addition, for the first time in its history, Web.com will have the resources to invest in branding initiatives that it expects will have an important long-term impact on establishing Web.com as a leading provider of online marketing solutions to the small business community, acquiring new customers and expanding its sales accordingly.
Web.com believes its combined company will be positioned to deliver non-GAAP revenue growth in the low teens, with non-GAAP EPS 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 realized.
