CentralNic Acquires Team Internet AG for up to $48 million (USD)

This afternoon, Team Internet AG announced that a deal has been reached for CentralNic to acquire the domain industry company “for up to US$48 million:”

Today we are proud to announce that we have become a part of the CentralNic Group PLC. We are joining a group of leading domain industry professionals and look forward to continuing to serve our partners with the support they know and trust. Full statement https://t.co/NL4wD4spuG

— Team Internet AG (@teaminternet) November 15, 2019

Team Internet is a domain name monetization company, which operates ParkingCrew and TONIC. ParkingCrew is a domain name parking service provider, and TONIC is a platform to buy and sell traffic. In the investor release announcing the acquisition, it was revealed that “Team Internet generated US$66.7m of revenue (unaudited) and US$10.6m of Adjusted EBITDA (unaudited) in the 12 months to 30 June 2019.” Based on a nameserver report from DomainIQ, it appears there are just over 604,000 domain names that use the ParkingCrew.net nameservers.

CentralNic is a publicly traded company, and that is probably the main reason the financial details of this deal were publicly shared.

Here is some more information about the deal, extracted from the investor relations release:

CentralNic announces it has today signed a conditional agreement to acquire the entire share capital of web services provider, Team Internet from Matomy Media Group Ltd. (“Matomy”) for a total consideration of US$48m subject to customary working capital adjustments.

The total consideration of up to US$48m comprises a cash consideration of US$45m, of which US$3m is deferred, and a share consideration of US$3m payable in Group shares. This represents a multiple of 4.5 times Team Internet’s EBITDA on a continuing basis for the trailing 12 months to 30 June 2019 of US$10.6m. The acquisition is expected to be immediately earnings enhancing and significantly accretive in the financial year ending 31 December 2020 on a standalone basis before any integration or revenue synergies.

Following completion, CentralNic will be one of the world’s leading providers of domain name monetisation services with a proprietary platform that enables domain name investors to generate recurring advertising income from their assets.

Team Internet is based in Munich, Germany. Over the ten years since it launched, it has continuously developed its platform and delivered audited revenues of US$75.6m and Adjusted EBITDA of US$14.2m in the year ended 31 December 2018, and US$66.7m of revenue (unaudited) and US$10.6m of Adjusted EBITDA (unaudited) in the 12 months to 30 June 2019.

Team Internet experienced an increase in revenues in the year ended 31 December 2017 due to the collapse of a competitor. Following a period of rationalisation and focus on retaining high quality customers, Team Internet’s revenues have reduced to levels that are stable and highly recurring in nature. From this revised base, Team Internet has returned to month on month revenue growth in Q3 2019.

Team Internet’s revenue is highly recurring with approximately 35,000 individual customers signed to rolling contracts to monetise a total of more than 20 million domain names using Team Internet’s proprietary technology for matching domain names with the highest paying advertisers. These contracts earn revenues for Team Internet on a monthly recurring basis with high levels of retention.

The acquisition will add an additional 40 staff in Germany, shifting CentralNic’s critical mass with almost 200 engineering and other staff members based there. Team Internet is an extremely efficient automation-focused company which derives c.US$1.6m in revenues per staff with CentralNic’s focus being on opportunities to grow the business through CentralNic’s existing global sales and marketing networks and by bundling and cross-selling as opposed to cost savings. The Directors believe that domain monetisation is a service that could potentially be bundled with an estimated 30% of all domain name registrations. This represents a significant opportunity to the Group as CentralNic currently has 18.6 million domains under management as of 30 June 2019.

All Team Internet management and staff will remain with the business following completion, with the three founders being retained on the supervisory board to guide the future growth of the business.

The acquisition is conditional on, amongst other things, Matomy shareholder approval and financing, which CentralNic expects to arrange through issuing additional bonds under its existing senior secured bond, further details of which were announced on 30 September 2019. The bond issue is being underwritten by Macquarie Principal Finance Pty Ltd, UK Branch, on the same terms and conditions as CentralNic’s existing bond issue.

The acquisition is expected to complete in late December 2019. Following completion of the Acquisition, the Company is expected to have net debt of approximately US$76m. This represents a ratio of 2.4x net debt to pro forma Adjusted EBITDA on a trailing pro forma basis. The Directors expect this to reduce to c.2.0x following the first full year of ownership.