Web.com (WEB) to Acquire Yodle
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Web.com Group, Inc. (Nasdaq: WEB), a leading provider of Internet services and online marketing solutions for small businesses, today announced it has entered into a definitive agreement to acquire Yodle, a leader in local digital marketing, in an all cash transaction.
“The acquisition of Yodle is a natural complement to our strategy at Web.com. Value added digital marketing solutions are a large and fast growing portion of the market where Web.com has developed a differentiated set of offerings. This market segment has been a strategic focus for us for several years, and the purchase of Yodle will solidify our position as a leading national provider in this space. We are pleased to be gaining a company with a strong track record of developing and selling vertically focused solutions that help small businesses attract new business and retain existing customers through cloud based marketing platforms,” said David L. Brown, chairman, chief executive officer and president of Web.com.
Brown added, “To put this transaction in perspective, on a combined basis for 2015, Web.com would have had over $765 million in non-GAAP revenues with 50% of its revenue generated from faster growing value added digital marketing solutions. We expect the transaction to be accretive to non-GAAP earnings per share within the first year as we begin to realize synergies and pay down debt.”
Yodle is a leading provider of cloud based local marketing solutions for small businesses with approximately 1,400 employees and over $200 million in annual revenue. They serve approximately 58,000 subscribers at an average revenue per user (ARPU) of approximately $300 per month. Combining the Web.com and Yodle franchises will have multiple strategic and financial benefits including:
- Accelerates Web.com’s position and scale as a leading, national provider of value added digital marketing solutions to small businesses.
- Improves Web.com’s growth profile by adding higher growth revenue streams.
- Adds complementary vertical market products and expertise, office automation business applications, and a successful franchise platform serving over 9,000 locations building on Web.com’s ongoing initiatives to expand in these areas.
- Creates opportunity to up sell and cross sell across a 3.4 million subscriber base.
Financing and Financial Impact
Web.com will acquire 100% of the outstanding shares of Yodle with $300 million paid at close and $20 million and $22 million paid at the first and second anniversary of the closing date, respectively. The purchase price is subject to customary working capital adjustments. For 2015, the combined company on a pro-forma basis would have had $767 million in non-GAAP revenue and $189 million in adjusted EBITDA, including full run rate synergies of $30 million. For 2015, the combined company on a pro-forma basis would have had $751 million in GAAP revenue and $49 million of GAAP operating income, excluding any synergies.
The acquisition will be funded with committed bank debt financing consisting of amendments to the existing credit agreements, a new $200 million term loan as well as approximately $100 million from the current revolving credit facility. Both the term loans and the revolving credit facility will be priced at LIBOR plus 300 basis points with step downs based on leverage ratios. On a pro-forma basis as of December 31, 2015, Web.com would have had approximately $756 million of gross debt representing a leverage ratio of four times pro-forma adjusted EBITDA, including full run rate synergies of $30 million, and a weighted average cost of debt of 2.6% at current market rates. In addition, Web.com expects to realize future cash tax savings from gaining approximately $50 million of net operating losses. Web.com intends to use its strong free cash flow to pay down debt over time.
The transaction is expected to close by the end of the first quarter of 2016, has been approved by both Web.com’s and Yodle’s board of directors, and is subject to customary closing conditions including regulatory approval under the Hart-Scott-Rodino Antitrust Improvement Act.
J.P. Morgan Securities LLC, BofA Merrill Lynch and Barclays served as financial advisors and Cooley LLP acted as legal counsel to Web.com. Credit Suisse acted as financial advisor and Lowenstein Sandler LLP served as legal counsel to Yodle.
Web.com will discuss this transaction in conjunction with its previously announced fourth quarter 2015 financial results and business outlook conference call, scheduled for today, February 11, 2016, at 5:00 p.m. ET. There will be an accompanying slide presentation which will be available on the Investor Relations page of Web.com's website (http://ir.web.com), along with a live webcast and replay of the call. To access the call, dial 877-407-0789 (domestic) or 201-689-8562 (international). A replay of this conference call will be available until February 18, 2016 at 877-870-5176 (domestic) or 858-384-5517 (international). The replay conference ID is 13628646.
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