Moonfruit Finally Exits For $29 Million In Cash To Re-energize Yell

In the white heat of the current tech market it’s sometimes easy to forget that some companies, although taking their time, simply become viable businesses – instead of waiting for a call from Facebook or Twitter that may never come. I’ve been covering web site and shop builder Moonfruit for longer than I care to remember (they launched in 2000), but along the way husband and wife team Joe and Wendy White kept on pushing the company until it was one of the most innovative of its kind out there. Today that hard work is rewarded in Moonfruit’s acquisition by directories giant Yell for $29 million (£18m) in cash.

Unusually for a UK acquisition announcement, Yell has also made the golden hand-cuffs explicit for the founders. Retention bonuses of £5.2m (£2.7m grossed up) will be paid to Moonfruit’s executive management team of Joe White, Eirik Pettersen and Wendy Tan-White after two years, provided that they remain exclusively employed by Yell.

Most people know Yell as a yellow pages directory for its 1.3 million SME customers. Clearly what it must become to survive in the era of Google is a online marketplace providing not just listings but business tools for that market.

Over 5 million sites and 230,000 shops have been built using Moonfruit, which is now the no. 1 hosted site builder in the UK, and has seen over 1.5 million sites built in the US. It’s also build a very sticky Facebook integration.

While the competition includes Weebly and Yola (rebranded from Synthasite) in the US Moonfruit has been profitable on a subscription model, these competitors have entered the market more recently and are focused on a free, no ads model. There is also the German-born Jimdo which has since concentrated on Asia. Moonfruit has moved towards a freemium model, with a premium upgrade path for users, but with a new advanced HTML5 engine that build not just sites but shops and mobile versions.

Moonfruit’s engine will be a key component of Yell’s new “eMarketplace” strategy comprising a platform and portal where consumers and SMEs can connect and transact.

Yell already has an enterprise commerce solution in the form of Znode, an Ohio company it acquired last year for $19.2 million (£12 million).

What Yell did not have however was the ability for customer to create “light” commerce and web presence services in the way Moonfruit had.

Both parties seem to win out of this deal. Yell gets a much better offering for SMEs which pulls them out of the pit of just being a classifieds provider, while it accelerates Moonfruit’s own expansion worldwide, building on its growth in the UK and US.

Mike Pocock, Chief Executive Officer of Yell, said: “The addition of Moonfruit’s services and team helps us provide competitive advantage to our global SME customers in connecting with consumers through digital, mobile and social.”

Moonfruit took £1.57 million in funding in 2010 from US investment bank Stephens and Silicon Valley based angels including Dave McClure of 500 Startups, Robbie Van-Adibe and Theorem.

The value of the assets, which are the subject of the transaction, as reflected on Moonfruit’s balance sheet as at 31 December 2011, is £4.88 million. For the year ended 31 December 2011, Sitemaker Software Limited, Moonfruit’s wholly-owned subsidiary, made a loss before tax of £1.26 million.

As Wendy Tan White told us: “All the partnership conversations we had in the US became acquisition conversations, we had several players on the table but Yell’s offer was the best, all cash, clean exit for all our investors and they’ve incentivised us to stay and help them turn a very cash generative, global directory and print business into a global digital services player.

“Basically it seemed like a fun, challenge for at least the next 2 years. They feel like a ‘corporate startup’, lot’s of resources but taking the risks to turnaround their business. They feel in a similar space to Prudential which disrupted UK retail banking with Egg, the first UK internet bank – that was my first taste of a startup project.”

“We were also swayed by the fact they are British headquartered but 50% of their customers are in the US. I felt like we weren’t selling out to the US but we will get the US and global distribution we were looking for. We like a challenge! We may well be hanging out in Seattle for a while so we’ll get more US tech experience. And who knows what we’ll do next!”

Last year Yell had had 1.3m SME customers, £2bn in revenue, £500m EBITDA and £250m free cash flow on top of £200m reserves. But they need to move from their old directory and print business to digital services like Moonfruit’s.

Yell now has a new Chief Digital Officer who was ex-president of MSN and Yahoo Media based in Seattle, where the Whites will report into.

It’s all a long way from giving away MacBooks Airs on Twitter in 2009, but it looks like the plan came together in the end.