Breaking: Escrow.com to be Acquired by Freelancer.com

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A few moments ago, I received an email from Escrow.com President Brandon Abbey announcing that Escrow.com was acquired by Freelancer.com. According to a press release (published in its entirety below), Freelancer.com “announced that it had entered into a definitive agreement to acquire Escrow.com from a private investor for US$7.5 million in cash.” The deal is subject to regulatory approval.

Commenting on the acquisition in an email, Brandon said the following:

“Needless to say, this is very exciting for us to be joining the world’s largest freelancing, outsourcing and crowdsourcing marketplace and their 15 million users in 247 countries around the world. The company will remain a California based business and we will continue to operate the business as usual and to exceed the high standards that you have come to expect from us.”

Based on those comments, it seems like this is good news for the company, as it will open up more opportunities for Escrow.com to be used to facilitate payments for the Freelancer.com audience. Β I am hopeful that Escrow.com continues to be run in the same manner in the past, as I appreciate the attention the company gives its customers, and they are a trusted partner of mine, both for my escrow transactions and as a sponsor of this blog.

The press release published by Freelancer.com can be found below:

Freelancer.com announces the acquisition of Escrow.com and completion of capital raising

SYDNEY, April 27, 2015: Freelancer.com, the world’s largest freelancing and crowdsourcing marketplace1, today announced that it had entered into a definitive agreement to acquire Escrow.com from a private investor for US$7.5 million in cash, and completed a AUD$10 million placement of ordinary shares to institutional investors.

Headquartered in California, Escrow.com provides online escrow services that facilitate and accelerate e-commerce by assuring secure settlement. It was founded in 1999 by Fidelity National Financial, a Fortune 500 company and the US’s largest provider of commercial and
residential mortgage and diversified services.

Escrow.com is the leading provider of secure online payments and online transaction management for consumers and businesses on the Internet, with FY14 gross payment volume of US$265 million, net revenue of US$5 million, US$1.2 million in EBITDA and over US$2.2 billion in transactions to date.

Escrow.com reduces the risk of fraud by acting as a trusted third party that collects, holds and disburses funds according to buyer and seller instructions. Escrow services provided by the company are licensed and regulated.

Escrow.com partners include eBay, GoDaddy, AutoTrader.com, Flippa.com and it is also a strategic partner of the U.S. Commercial Service (USCS) in support of President Obama’s National Export Initiative designed to significantly grow US export volume.

Freelancer.com Chief Executive Matt Barrie said, “We are pleased to acquire Escrow.com, the world’s largest online escrow company. This highly complementary acquisition will enhance the ability of our 15 million users to transact securely, and there are large opportunities for growth and synergies with core offerings. Finally, it is a strong cornerstone for entering the payments space”.

Escrow.com President & Managing Director Brandon Abbey said, “We are excited to be joining the Freelancer.com group. Freelancer’s expertise in marketplaces, combined with our expertise in secure online payments are an excellent strategic fit.”.

The Escrow.com group staff will be continuing with the California-based business.

A capital raising of AUD$10 million of ordinary shares to institutional investors was oversubscribed and has been completed to fund the acquisition, and for general corporate purposes. 10 million ordinary shares were issued at $1.00, a premium to the last close of $0.995. UBS AG, Australia Branch, was sole bookrunner for the deal. The acquisition of Escrow.com is subject to regulatory approval.

Settlement of the placement is currently scheduled to take place on Thursday, 30 April 2015, with allotment and quotation of shares expected to occur on the ASX on Friday, 1 May 2015. Escrow.com was advised in the transaction by Capstone Partners LLC.

1 by total number of users and projects & contests posted

1 COMMENT

  1. $7.5M sounds cheap, considering the domain itself has considerable value, as does $2B in transactions, and going strong.

    If escrow transacts 500M in a single year, that it almost $5M in revenue.

    Never really saw who owns escrow now, B A?

  2. I agree and stated a similar feeling on Michaels blog earlier.

    If this is the case ($5M net) who in the world would want to start a competing service up and all the costs involved, futile and essentially a waste of time.

    Good news for freelancer not so much for those trying to compete with Escrow.com.

  3. What an amazing world class brand and business with over $1billion in transactions… at such a great price. Congrats to all involved.

  4. I am absolutely shocked that a company with that level of business, with profitability in the millions, and the perfect domain name that defines the business, would sell for such a low price.

  5. Say what??? Wow. That’s all??? What are we missing in this valuation equation?

    I think everyone in the industry, especially those who have sold undeveloped one word domains for 7 figures, will be shaking their heads in disbelief how a top one worder like Escrow.com with it’s enormously successful and profitable business and with it’s highly respected brand value of being the #1 company in the domain transfer space, plus it’s inherent future growth opportunities, could sell for only $7.5 Million.

    That means Escrow.com sold for less than Rick’s recent $8.9 Million deal for Porno.com.

    Congrats to the buyer, you got the steal of the century on that acquisition.

  6. Say what??? Wow. That’s all??? What are we missing in this valuation equation?

    I think everyone in the industry, especially those who have sold undeveloped one word domains for 7 figures, will be shaking their heads in disbelief how a top one worder like Escrow.com with it’s enormously successful and profitable business and with it’s highly respected brand value of being the #1 company in the domain transfer space, plus it’s inherent future growth opportunities, could sell for only $7.5 Million.

    That means Escrow.com sold for less than Rick’s recent $8.9 Million sale for P_rno.com. I would have expected a gem like Escrow.com selling easily in the 8 figure range.

    Congrats to the buyer, you got the steal of the century on that acquisition.

  7. It may be that escrow.com was not officially for sale, but the owner was approached with a decent offer and just decided to take it. Once a large sum of money is dangled in front of you, it becomes very tempting. That is basically what happened when I sold Bored.com back in 2008 (see
    http://www.impulsecorp.com/the-psychology-of-a-multi-million-dollar-sale ).
    On the other hand, I sold the exact month the “great recession” officially started, so I had reason to worry about the future. Escrow.com seems more stable, and I think they could have gotten that $7.5 million anytime, so I am not sure why they didn’t try more to get a higher price. I think $10 million would have been a fairer price.

  8. It’s not a website and domain they’re purchasing it’s a company, we’re being given a snapshot of what the sale entails. We don’t know the full role Brandon Abbey will be assuming at Freelancer.com, perhaps there are bonuses pending milestones after X number of years, shares of the company being gifted etc..What’s more perhaps Brandon saw it as an opportunity for he and his staff to become part of something bigger.

    Or maybe he just wanted the money πŸ˜‰

  9. The buyer paid 6.25x EBITDA and a little over 1x revenues for the business.
    Of course, when some public tech companies are trading for 10-15x revenues people scream foul. The $7.5M price here is probably a better # for the buyer than seller but not incredibly so.

  10. On a $20,000 domain sale Escrow makes 200 bucks. Way to cheap of a fee in my opinion. Freelancer will raise the rates and flip Escrow in a couple years for 25 million.

    • I agree people are price sensitive but where else are they going to go. There are only a few companies that provide this service and no one comes close to Escrow.com.

    • True, but at a certain point, people would choose the added risk than paying much more.

      For example, if Escrow.com increased a fee from $200 to $800 for a transaction, I would likely choose a different escrow service, use an attorney, or take a chance and not use escrow.

      I can’t imagine that a major price hike would happen because that would harm the business.

    • Yes, probably double to $400 would be fine, but double to $2,500 or $5,000 – probably not. It also depends on the value of the transaction and the counterparty.

      If I am doing business with a large company in my jurisdiction (I can sue if they fail to pay), I might transfer the name first and collect a wire payment after. I have a contract and assuming I deliver on the contract and they fail to deliver, there are legal remedies available.

      If I am selling a $2,500 domain name, I can afford to take the risk (depending on the counterparty) of not using an escrow service.

      If I have a large 6 figure deal and the escrow cost increases to a silly number, I can use a trusted attorney to handle escrow at a much lower cost.

      Escrow.com is one of my favorite companies to work with and I have done quite a bit of business with them. However, there would be a point that it wouldn’t be worth the cost of using them. I don’t know what that point is. Double? It depends on the cost. 10x increase and I’d find an alternative. On small deals, it’s a toss up, especially if the buyer or seller insists on using it. On large deals where escrow costs into the 4 or 5 figures and I’d have to see what options are out there if they increased the cost significantly.

      It’s sort of like hypothetically asking what happens if the cost of .com domains goes up. Hard to say based on speculation.

  11. We don’t know what the debt load was for escrow.com; any corporate debt would have been assumed by the acquiring company and said acquired debt could be the reason the net sales price was so “low” (relative to how much many here believe the company should have been “worth”).

    • Whenever companies tout their EBITDA numbers, that always means there is debt (after all, the “I” in EBITDA stands for Interest).

    • No. Specifically, the article states “$1.2 million in EBITDA”…just google EBITDA…they were likely actually losing money.

    • I doubt Escrow was losing money but I despise companies touting EBITDA figures.

      Earnings before Interest, Taxes, Depreciation & Amortization

      -this stat is often used as a surrogate for cash flow or reported to make management look better
      -most companies that make money pay taxes
      -if a company is reporting EBITDA, they probably have some debt load upon which they are paying interest
      -depreciation is a non-cash expense but many fixed assets such as computers, autos and machinery eventually have to be replaced or require increased maintenance as they age

  12. I believe it is safe to say that we can all expect higher prices for escrow.com services going forward…the old model didn’t work. I’ve used escrow.com services many times and loved it, and frankly, I would have paid DOUBLE for those transactions if asked to do so, and so would most of you.

    Prices are going WAY UP…mark my words.

  13. m – You are making a very big assumption when you say “they were likely actually losing money.” It would be somewhat useless for them to give their earnings after ITDA, so just because they used EBITDA does not mean there is a problem.

    Whatever taxes they pay on earnings, the owner is going to need to pay those same taxes on the sale of the company. And, the buyer may have totally different taxes in Australia, so they would want to know the EBITDA.

    As for Interest, if escrow.com has any debt, freelancer.com would probably pay it off, so again, the EBITDA number is what counts.

    Depreciation and Amortization may or may not be a factor in their earnings; I have no idea. I would guess escrow.com does not have a lot of assets to depreciate, and more importantly they would not have a lot of
    capital expenditures (as compared to say a manufacturing business).

    • Eric said:

      “You are making a very big assumption when you say β€œthey were likely actually losing money.” It would be somewhat useless for them to give their earnings after ITDA, so just because they used EBITDA does not mean there is a problem.”

      Response:

      The only reason to tout EBITDA instead of net income, post-sale, is because there was likely a net loss on the business.

      Eric said:

      “As for Interest, if escrow.com has any debt, freelancer.com would probably pay it off, so again, the EBITDA number is what counts.”

      Response:

      Typically, an acquiring company does not “pay off” the debt of a company they are acquiring, especially if they are retaining the brand name and operating the acquired company as a separate entity. Is freelancer even a profitable company? Also, I’m beginning to wonder if the Escrow.com purchase of Agreed.com last year was purchased with free flowing cash or did they take on additional debt?

      We will probably never receive answers to the above questions, but it doesn’t take a genius to figure out why the sales price was only $7.5MM

  14. If I read it correctly, escrow was owned by a financial holding company. In the financial world, they use EBITDA (which is a more exact term) instead of a broad term like “net profit”, “net revenue”, etc, which may be fudged.

    • In the “financial world”, companies that actually post a “net profit”, use the term “net profit.”

      Net Profit is Net Profit – can’t fudge that one. So, where’d you get that MBA? πŸ˜‰

  15. Two predictions.

    β€’ Fees will inevitably go up.

    β€’ We’ll see way more “Buyer Pays Escrow Costs” now in listings. πŸ™‚

    • I was always shocked with how low the escrow.com fees were. If the buyer doubles the fees and retains 75% of the client base, then essentially the purchase was FREE after 3-4 years…paid for by just increasing the fee rate. This buyer might be a frickin’ genious, seriously.

  16. I would like to see the details on the deal, especially since it could be purchase price + certain level of income per year for former owner. The latter part would make sense to help the transition on the domain side of the business which I suspect Freelancer does not know as much about.

    Either way, change is the only constant in this world.

    IR

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