Web.com to Acquire Network Solutions

Tripling of customer base to approximately 3 million subscribers provides significant cross-sell and up-sell opportunities to drive growth.

Web.com, Inc., a web services provider, yesterday announced the signing of a definitive agreement with Network Solutions, a provider of web-based technology for small business, website creation, web hosting and domain name registration, for the company to acquire Network Solutions.

The company says that under the terms of the agreement, upon the closing, it will pay Network Solutions USD 405 million in cash and issue 18 million shares of its 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 global growth equity firm. Wells Fargo Securities, BofA Merrill Lynch and J.P. Morgan acted as financial advisors and Cooley LLP acted as legal counsel to the company. Goldman Sachs and Deutsche Bank acted as financial advisors and Paul, Weiss, Rifkind, Wharton & Garrison LLP acted as legal counsel to Network Solutions. Lead arrangers and bookrunners for the debt financing are J.P. Morgan, Deutsche Bank, Goldman Sachs and SunTrust Robinson Humphrey, Inc.

It avers that the transaction, which is subject to the company's 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 the company. In addition, as part of the acquisition agreement, Anton Levy, a Managing Director of General Atlantic, will join the company's board of directors.

The company articulates that both itself 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, the company will have a tremendous opportunity to cross-sell and up-sell its online marketing, Facebook, mobile and web services offerings. In addition, the company's current approximately one million subscribers will be offered a number of Network Solutions products and services that are complementary to the company's product suite.

It states that with the Network Solutions acquisition, the company 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 pro forma combination reap the benefits of an immediate increase in scale, but it 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 company claims that the much greater profitability and unlevered free cash flow of the combined company, combined with significant cost savings and operational efficiencies, will enable it to make high ROI investments in growth initiatives. In addition, for the first time in its history, the company will have the resources to invest in branding initiatives that it expects will have an important long-term impact on establishing it as a provider of online marketing solutions to the small business community, acquiring new customers and expanding its sales accordingly.

"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 SMBs 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," Brown continued.

Brown added, "Web.com has generated significant shareholder value following the Register.com acquisition, and we believe there is an even greater opportunity to do so following the acquisition of Network Solutions. We are highly confident that the strong cash flow capabilities of both companies, combined with the potential for over USD 30 million in annual cost savings, will enable Web.com to rapidly pay down our debt commitment and further increase investments in growth initiatives."

Anton Levy 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 USD 19 billion online services market for small and medium businesses in ways that neither company could do efficiently on a standalone basis."