Conduit, Worth $1.4BN, Merges With Email Giant Perion (Worth $153M) To Take Its Place On NASDAQ

Conduit, the Israeli-based browser-toolbar and mobile startup estimated to be worth some $1.4 billion, has confirmed it is merging with Perion Network. Conduit’s Client Connect business and Perion will combine in an all-stock transaction. Perion’s current market cap is $153 million. The combination creates a search distribution company generating $367 million in revenue and $109 million in EBITDA for the 12 months ended June 30, 2013. The newly combined Perion operation represents more than 260,000 publisher and content partners.

Perion’s three main consumer brands are: Incredimail, Smilebox and SweetIM.

The price for the transaction was not disclosed but there have been rumours about such a deal before.

The Perion deal is effectively a reverse takeover. Previously we reported that Conduit was paying between $100 million and $200 million for the company and would assume Perion’s public listing on NASDAQ. (Perion’s current market cap is $153 million.)

Conduit launched in 2005, and over 250 million users and 260,000 publishers on its platform. It reportedly makes about $800 million in revenues annually, with between $200 million and $300 million of that from the toolbar business. The mobile business is based primarily around a DIY app and mobile website builder, with a basic version of the service coming free and more enhanced features starting at $39/month.

Consumer Internet companies coming out of Israel are now clearly punching higher, especially given the recent acquisition of Waze by Google.

In a statement the companies said:

Josef Mandelbaum, Perion’s CEO, commented, “This is a transformational event for our company, and a powerful combination for our employees and shareholders. This is truly a case where one plus one equals three. Our businesses complement each other and will enable us to increase investment in our monetization and distribution platform, mobile efforts, display advertising and product innovation. I am very happy to welcome all the talented Client Connect employees to Perion and look forward to continuing to build on the great success they have achieved to date.”

Ronen Shilo, CEO and co-founder of Conduit, added, “We couldn’t be happier with this combination. Perion is a thriving, public company that shares our values of entrepreneurship and integrity. I have known Josef for a long time, and I can think of no one better equipped to take Client Connect forward.”

Conduit will spin off its Client Connect business, which includes its monetization and distribution platform for publishers and developers. Under the agreement, the spin-off company will be combined with Perion, which upon closing will issue to Conduit shareholders between 57-60 million shares, based on Perion’s fully diluted share count at closing. Following the closing, Perion will be owned 81% by the existing Conduit shareholders and option holders and 19% by existing Perion shareholders and option holders, on a fully diluted basis.

The combined organization will be led by Josef Mandelbaum, Perion’s current Chief Executive Officer, and Yacov Kaufman, Perion’s current Chief Financial Officer, who will continue to serve in those capacities. Josh Wine will join Perion as President and continue to lead the Client Connect business. Dror Erez, co-founder of Conduit, and Roy Gen, Conduit’s CFO, will join Perion’s Board of Directors at closing.

This combination is the product of Conduit’s decision to spin off Client Connect, its monetization business, and Perion’s growth strategy through acquisitions. Conduit will continue to operate and invest in its high growth emerging businesses which are not part of the transaction; they include its U browser ecosystem and Conduit Mobile, a fast-growing DIY app-creation platform.

Highlights of the combination include:

Substantially increased scale: The combined business will represent a top-three search distribution company responsible for over 2% of searches in the U.S.
Strong Financials: As of June 30, 2013, non-GAAP pro forma trailing 12-month revenue of $367 million, EBITDA of $109 million and non-GAAP net income of $93 million.

Significant synergies: Shared cultures, revenue optimization opportunities, cost efficiencies and complementary assets, including an extensive partner network and strong media buying capabilities.
Accelerated Growth: With the addition of the Client Connect business, Perion will now have the platform and resources to further accelerate its product development as well as its distribution network.
Michael Eisenberg, General Partner at Benchmark Capital and an early investor in Conduit, commented, “This is an exceptional opportunity for shareholders of both companies. Perion’s leadership has proven its ability to create significant value. They are now poised to become the partner of choice for developers large and small to distribute and monetize their innovations. I am very excited for the future.”

The transaction is scheduled to close in early January 2014, subject to a vote of Perion’s shareholders scheduled for November 2013, as well as customary closing conditions, tax rulings and approvals of governmental authorities. Various lock-up provisions are in place for major shareholders, and no single shareholder will own more than 14% of the shares outstanding post-closing.

UBS Investment Bank acted as exclusive financial advisor and Goldfarb Seligman and Kramer Levin Naftalis and Frankel LLP acted as legal advisors to Perion. RBC Capital Markets provided a fairness opinion to the Board of Directors of Perion.