Endurance Finalizes Constant Contact Acquisition, Lays Off 15% Of The Staff

by Trefis Team
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The deal which was first announced in November last year has been finalized earlier this month. Endurance has now successfully acquired Constant Contact (NASDAQ:CTCT) for an estimated $1.1 billion. The main goal of both companies is to provide small businesses (SMBs) with efficient tools to grow and compete better. The combination of the two companies will help small businesses not only begin operations, by hosting their websites, but also provide its customers with the tools to grow their businesses further through Constant Contact’s integrated marketing solutions.

The deal enables Endurance to significantly increase their product range. The company will now be able to provide its customers with all of Constant Contact’s email marketing, event management and contact management products. Additionally, it is estimated that with the integration of Constant Contact’s business, the Burlington based Endurance will add about 650,000 customers to its already 4.5 million existing customers. This deal is also the largest of the 40-plus acquisitions that Endurance has undertaken over the years and perhaps one of the most important. ((EIGI Q3 2015 Earnings Call Transcript, seekingalpha.com))

In November, the company had agreed to pay $32 per outstanding share, of which there are about 32 million shares. The acquisition was financed mostly through debt and was paid for in cash. To put the potential of this deal into perspective, we should look at the revenues for each of the companies. Endurance reported revenues of about $652 million in FY 2014, while Constant Contact posted revenues of about $332 million. The combined pro forma revenue for FY 2015 will stand at about $1.1 billion, with further double digit growth expected in FY 2016. Looking at adjusted EBITDA, the combined pro forma figure stands around $350 million in FY 2015, while the company expects this figure to reach close to $400 million by the end of FY 2016.

Despite all the positives, the conclusion of the deal does come with certain inevitable negatives. The company had to lay off about 15% of the Constant Contact staff after the finalization because of overlaps in certain functional areas. This roughly translates to about 210 people across offices in the U.S. and the UK. Additionally, Endurance plans to concentrate all of Constant Contact’s operations to three offices. This implies the closure of 4 other offices — namely the offices located in London, San Francisco, Delray Beach (Florida), as well as one of its offices in New York. Furthermore, Constant Contact’s CEO, Gail Goodman, will be stepping down and the company’s CFO, Harpreet Grewal, will be the new general manager. [1]

Endurance has consistently produced annual losses since its listing, while their market cap has shrunk to just over $1 billion. Furthermore, shares of the company have fallen by about 50% in the last six months. [2] That being said though, this could be the deal that turns things around for the company. It seems likely that Endurance now possesses the potential to best serve its customers by providing them a unique and consolidated product package, which could help increase customers and hence, revenues. As mentioned above, the numbers seem in line with good growth figures, which could push the company in the right direction. However, this information is just an estimate and is subject to change. Therefore, all one can do right now is speculate. With time, however, things will become clearer and we can be better informed about the company’s future.

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Notes:
  1. Constant Contact Cuts 15 Percent of Staff After its Acquisition, www.xconomy.com []
  2. Constant Contact is no Longer an Independent Company as Endurance Closes on Acquisition, www.bizjournals.com []
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