In 2001, the dot-com bust had caught up to Constant Contact Inc., one of the first companies of the Internet era to develop online marketing campaigns for businesses. Nearly out of cash and days from shutting down, chief executive Gail Goodman engineered a financing that got her company through a period that claimed many other Internet firms.
Now 14 years later, that perseverance is paying off big time for Goodman and the shareholders of Constant Contact.
Website hosting company Endurance International Group Holdings Inc. of Burlington will pay $1.1 billion for Constant Contact. The deal will help Endurance offer a broader spectrum of online services to millions of mom-and-pop businesses. Endurance will pay $32 in cash for each of Constant Contact’s 32 million outstanding shares, a 22.6 percent premium compared with Friday’s closing price for the stock.
Founded in 1997, Endurance isn’t exactly a household name. But the company serves about 4.5 million small businesses by hosting their Internet sites and providing additional services, such as site design tools and online retailing software. Endurance has grown in recent years by acquiring more than 40 smaller Internet hosting companies in the US and abroad. Its best-known brands include HostGator, Bluehost, and Domain.com.
Stephen Morea, a senior analyst at New York market research firm IBISWorld, said Endurance is the second-largest US provider of small-business websites, trailing only GoDaddy Operating Company LLC of Arizona.
For Endurance chief executive Hari Ravichandran, getting companies online is just the first step. “The next leg of the journey for a lot of these small businesses is how to help them grow their businesses,” Ravichandran said. “Obviously Constant Contact plays quite well in that space.”
Constant Contact is known for the TV and radio commercials it’s been running for years. Founded in 1995, the company is a leader in e-mail marketing campaigns for small businesses, with about 650,000 customers. Clients use Constant Contact to send advertising materials and newsletters to customers who’ve asked to receive them.
In fact, Endurance has been marketing Constant Contact’s e-mail services to its clients for about a year.
“We learned that they can very successfully bring our product to market,” Goodman of Constant Contact said. Thus, “their CEO reached out and said we should do more.”
Goodman owns about 2 percent of Constant Contact’s outstanding shares. Along with additional incentive payments, the deal is worth about $30 million to her.
Goodman said about 70 percent of both companies’ customers are businesses with fewer than 10 employees. But while the average Endurance customer pays $12 a month for the company’s services, Constant Contact’s customers pay an average of $47 a month. Simply by selling e-mail marketing services to more of its existing customers, Endurance could quickly generate a big new revenue stream.
Endurance had revenues of about $652 million last year, while Constant Contact reported about $332 million. Endurance estimates that the combined companies will have revenues of about $1.1 billion in its 2015 fiscal year, increasing by 10 percent to 12 percent in 2016.
But investors seem nervous about the deal. Endurance’s stock fell a hefty 16.5 percent, or $2.21, in trading Monday, to close at $11.12. At least one analyst who follows the company, Gregg Moskowitz of Cowen and Co., questioned whether Endurance would benefit all that much from the deal, according to Bloomberg News.
Moreover, Endurance will borrow nearly the entire amount to finance the deal, increasing its debt load to about $2 billion. Ravichandran predicted the revenues from Constant Contact will allow the company to manage the extra debt.
Also on Monday, Endurance announced third quarter revenues of $188.5 million and a net loss of $15.4 million. The company, which went public in 2013, has consistently posted annual losses. Ravichandran said the company’s strategy now is to focus on rapid growth through acquisitions rather than on turning a profit.
Shares of Constant Contact climbed $5.73 to close at $31.83.