R.H. Donnelley Corporation, a publisher of Yellow Pages directories in print and online, said Thursday that it had signed an agreement to acquire Business.com, a business-oriented search engine, online directory, and pay-per-click ad network.
Assuming that the $345 million acquisition passes muster with the Federal Trade Commission, the companies expect the deal to close in the third quarter of the year.
That's significantly more than the $7 million paid for the Business.com domain name in 1999 by co-founders Jake Winebaum and Sky Dayton.
Winebaum, CEO of Business.com, said that the two companies will complement each other. "We're both search engines and directories," he said. "Their online yellow pages and our business search engine are both essentially the same concept. We've focused exclusively on the B2B space, where we put business decision makers in front of business advertisers. And they have focused exclusively on local consumers looking for the products of local merchants. Product-wise, we're in the same exact business serving different markets."
Beyond strengthening R.H. Donnelley's Internet portfolio, the deal gives the company the online advertising platform it was planning to build. "We have spent the last seven years building out our platform, on the search side, on the advertising side, and on the marketing side," said Winebaum. "It's a performance-based platform that allows advertisers to bid for position on a pay per click basis. That is something that they're planning to implement but don't have yet."
While R.H. Donnelley stands to gain technology as a result of the deal, Business.com will gain feet on the ground. "The thing that is very unique about R.H. Donnelley is they have 2000 sales people on the street building relationships with 600,000 advertisers," said Winebaum. "In terms of existing sales presence and existing advertiser relationship in the local market, they are unrivaled."
The deal can also be seen as a lifeline that will allow R.H. Donnelley to escape the sinking print directory business, if Microsoft chairman Bill Gates is to be believed. In May, Gates predicted that the Yellow Pages had no more than five years to live, informationweek.com reports.
"[T]he Yellow Pages are going to be used less and less," he said. " Yellow Page usage amongst people in their, say, below 50, will drop to zero, near zero over the next five years."
R.H. Donnelley also affirmed its full-year outlook for positive ad sales growth, net revenue of about $2.67 billion and earnings before interest, tax, depreciation and amortization , or EDITDA, of about $1.44 billion, in line with analysts' estimates.
The company said its forecast does not include the impact of the pending Business.com acquisition.
Morgan Stanley analyst Lisa Monaco estimated that the proposed deal valued Business.com at 23 times trailing EBITDA.
"This multiple, while on the high end, is in the range of recent Internet transaction multiples," she wrote in a note to investors.
Shares were off $7.51, or 10.3 percent, to $65.57 on the New York Stock Exchange after trading as low as $62, Reuters reports.
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