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First take: Donuts to buy Rightside for $213 million

Deal saves Rightside from the public markets and challenged growth trajectory.

Top level domain name company Donuts has agreed to acquire competitor Rightside (NASDAQ: NAME) for $213 million, Rightside announced today.

The deal will give Donuts an additional 40 top level domain names, Rightside’s technical registry system (that currently powers Donuts’ domains), domain name registrar Name.com, and a portfolio of about 300,000 (mostly .com) domain names.

The $10.60-per-share offer is about 8% higher than the closing price yesterday, and a 12% premium over the average trading price of the past 30 days.

When looking at the valuation, it’s also important to think about Rightside’s cash component. It had $70 million in the bank at the end of March thanks to its sale of eNom to Tucows. However, it has spent some of that money on share buybacks since then.

Donuts offered to buy Rightside’s new TLD business for $70 million about a year ago.

It will be interesting to see if Donuts decides to retain the retail registrar Name.com and what it does with the portfolio of owned and operated domains. While Donuts has been a pure-play registry to date, it inserted a new CEO earlier this year.

Rightside will need 50% of shareholders to approve the deal. One that won’t be happy with the price is J. Carlo Cannell, but he owns less than 10% of shares.

I’ve been saying for a while that Rightside is too small to remain a public company after selling eNom. Additionally, the company has bet on new top level domain names but hasn’t been able to move the lever on registry revenue. These factors, combined with lumpy aftermarket revenue, put the company in an awkward spot. Going private through a buyout such as this is its best option.

The deal should close in Q3.

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  1. Nick

    No doubt that was Rightside’s business model. The entire company was always meant to be a short term investment for the shareholders. They just wanted their buyout to be much bigger.

    • Nick

      Donuts appointed multiple execs last year that had were responsible for initial public offering for past companies their were at. Buying Rightside is just a way to look bigger and not have a negative example for analyst to look at when they launch their own IPO. They could not launch an IPO with Rightsid there looking like a horrible example. No doubt Donut Shareholders want an IPO so they can sell and get out of the TLD business too.

        • Nick

          Yes, Donuts is run better. but investors are investors. Venture Capitalist Firms all come in with Exit Strategies. They didn’t make their money back at all. An IPO or buyout is the only reason they invested.

  2. MichaelBlend

    This is a great deal for Donuts and Rightside. I wish it had happened in reverse (Donuts had merged into Rightside) so I could buy some Donuts stock.

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