One of the biggest events in the website world over the past year was the formation of Newfold Digital. For those unfamiliar, Web.com owner Clearlake Capital last month completed a $3 billion acquisition of Endurance International from Siris Capital, effectively bringing together Endurance and Web.com.
As we wrote at the time, this is part of an ongoing consolidation trend in the website-builder world. It also could be a sign of more M&A to come. Given that core website products like hosting are commoditized, it’s all about growing ARPU and lifetime value through strategically-assembled adjacent products.
But as we often do, we’re revisiting this story to go one level deeper. What drove the acquisition? How is the combined entity positioned? And what can we expect to see next? To tackle this, we assembled our go-to council of M&A experts for another video roundtable. See the full video and summarized takeaways below.
M&A Expert Panel
Chris Legg, Senior Managing Partner, Progress Partners
David Arslanian, Managing Partner, Progress Partners
Drivers & Dynamics
When digging into the drivers and dynamics of the Newfold deal, part of it is about leadership, part of it is about strategic restructuring, and part of it is about expanding the product suite as noted above. Starting with leadership, Chris Legg believes that Newfold is in the right hands with CEO Sharon Rowlands.
“Talent still matters,” said Legg. “[Rowlands] is a superstar and came from Web.com but was running Reach Local before that, and she was on the board of Constant Contact. Having her as a leader for the combined company is definitely proven and upgraded from past management at both those companies.”
Moving on to structural repositioning, this deal has typical strategic triggers for going private (Clearlake Capital is a private equity firm). This often happens when a cash-flow positive business exists in a maturing sector where revenue growth slows. Public markets aren’t big fans of that, as you likely know.
“These two companies have been public for a while,” said Legg. “When you see something go from public to private, it’s a sign of a maturing industry. It’s cash-flow positive and it can be taken out of the window of public markets and better optimized privately. You consolidate them then make them much more efficient.”
This is the private equity playbook, meaning there’s some planned payoff in the end. That could be a sale of Newfold (or its parts), or re-entering the public market. The latter is a possibility says Legg, and it would likely be a leaner entity (or separate entities) that have the revenue growth potential that public markets reward.
Lastly, this rollup could be a sign that all of the M&A drivers currently in the market are still prevalent, and we could see more in the near future. As Legg notes, martech is still hot, especially in the SMB segment. There’s still ample headroom and upside given the sizable share of the SMB universe that has lots of catching up to do.
See the full video below and stay tuned for Part II of this coverage, when we’ll break down the roundtable’s second segment on the rise of SPACs.