M&A Alert—February 11, 2016
Web.com acquires SMB online marketer, Yodle, for $342 million.
Author: Eric Risley & John Ascher-Roberts
Transaction Size: $342mm
On February 11, 2016, Web.com (NasdaqGS:WEB) announced an agreement to acquire SMB digital marketing firm, Yodle, for $342 million.
Yodle offers small to medium sized businesses a mobile, web and social presence, customer reviews, email campaigns, and appointment reminders through its flagship product, Marketing Essentials. Yodle currently has 58,000 subscribers in over 9,000 locations across the United States. It had $200 million revenue in 2015. Its competitors include Angie’s List, Constant Contact, Demandforce, Endurance Intl’, GoDaddy, Hubspot, Solutionreach, TEGNA, Wix.com, Yelp and YP.com.
Nathaniel Stevens, Ben Rubenstein, John Berkowitz and Kartik Hosangar founded the New York-based company in 2005. Court Cunningham has served as CEO since 2007. Prior to its acquisition, it received $40 million in funding from investors including Bessemer Ventures (Robert Stavis), DFJ Growth (Randy Glein), Icon Ventures (Thomas Mahwinney) and MentorTech Ventures (Michael Aronson). Yodle had roughly 1,400 employees upon its acquisition.
Web.com Group, Inc. (NasdaqGS:WEB) is a leading provider of internet services and online marketing solutions for small and medium sized businesses. Web.com meets the needs of small and medium sized businesses anywhere along their lifecycle by offering a full range of online services and support, including domain name registration services, website design, logo design, search engine optimization, search engine marketing and local sales leads, eCommerce web site design and call center services. Based in Jacksonville, FL, revenue for the last twelve months ending on December 31, 2015 was $544 million. It has a market capitalization of $889 million and trades at 2.4x Enterprise Value / LTM Revenue.
Web.com is purchasing Yodle for $342 million in cash with $300 million at closing and $20 million and $22 million at the first and second anniversaries.
Comparable transactions include Internet Brands’ acquisition of Demandforce in January of 2016 (undisclosed), Endurance International’s acquisition of Constant Contact for $1.1 billion in November of 2015 (3.0x rev), Affinity Solutions’ acquisition of 2GoMedia in October of 2014 (undisclosed), The Berry Company’s acquisition of LocalVox Media in September of 2014 (undisclosed), IBM’s acquisition of Silverpop Systems in May of 2014 (undisclosed), Oracle’s acquisition of Compendium Software in October of 2013 (undisclosed), Salesforce’s acquisition of ExactTarget for $2.5 billion in June of 2013 (8.6x rev) and Intuit’s acquisition of Demandforce for $424 million in May of 2012 (15.1x rev).
Yodle offers Web.com the opportunity to materially improve the monetization of their client base. Today, Web.com’s average client generates $167 per month in revenue while Yodle’s is approximately $300 per month. Web.com has a chance to offer their existing 3.4 million SMB customer the higher valued Yodle services, such as search engine optimization, leads, and customer relationship management.
Architect Partners’ Observations
This transaction has some very interesting dynamics suggesting a disappointing and somewhat pressured M&A scenario.
Two years ago, Yodle had been talked about in the press as a $1 billion company. In mid-2014, Yodle had filed to go public but the IPO never got completed. According to Bloomberg, Yodle instead attempted to raise $30mm in a private financing at a valuation of $500 million which also was apparently never completed.
During that same time period, revenue growth slowed from 22% in 2013 to 12% in 2014 and further falling to 9% in 2015, and operating losses ballooned from $13.1mm for the twelve-month period ended March 31, 2014 to $50mm for the year ended December 31, 2015.
In spite of having significantly better per client monetization as mentioned above, Yodle’s M&A multiple of 1.7x was almost 30% below the Web.com’s enterprise value to last twelve months revenue, although it is in-line with other public competitors (Angie’s List, Yelp and GoDaddy range from 1.6x – 1.8x revenues).