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How Rightside sold itself

There were lots of twists and turns over the past year as Rightside sold itself.

Domain name company Rightside (NASDAQ:NAME) announced last month that it would be acquired by Donuts for $213 million.

This ended a long and winding road for the company as it began exploring strategic options last year. It has Donuts to thank for pushing this process forward.

Donuts started it by offering to purchase Rightside’s registry business for $70 million last year. The deal came to light in June 2016 after Rightside rebuffed Donuts offer.

According to an SEC filing, Rightside asked its bankers Barclays to look for potential buyers. Two buyers came to the table with indications of interest.

One was Party A, described as a “non-U.S. domain registrar and internet services company.” On September 12, 2016, it submitted a non-binding indication of interest to buy Enom fo $150 million.

The other was Party B, a “leading internet domain registrar and web hosting company”. On September 14 it submitted an indication of interest to buy Rightside for $11.75 per share. Five days later, it upped its offer to $13.50 but stated that it didn’t want to acquire eNom and the deal was conditioned upon a sale of eNom at the same time it acquired Rightside.

The next day, Party B removed the eNom requirement but reiterated that it wasn’t interested in buying eNom. It wanted a 30-day exclusivity period to negotiate the deal, and Rightside’s board authorized this on September 23.

So negotiations with Party B, which wanted to buy all of Rightside other than eNom, commenced. But on October 13 Party A said it could no longer pay $150M for eNom citing “among other reasons, that certain elements of Party A’s own business were underperforming and accordingly, the expected synergies between the eNom business and Party A platforms were lower than previously anticipated.”

Rightside told Party A that it would consider a revised offer.

Meanwhile, Party B said that it “discovered issues during the course of its due diligence evaluation” and planned to offer a revised indication of interest that would have required, once again, that Enom be divested at the time of sale.

Once this happened, Rightside canceled the exclusivity.

On October 26, 2016, Party B sent a revised indication of interest at $8.00 per share for Rightside’s registry, Name.com and aftermarket business but not eNom.

Barclays continued outreach. On October 18 Barclays contacted Party C, a PE and VC firm, to see if it would buy eNom. That firm said its preliminary valuation was only $35 million to $40 million.

Tucows was also contacted. It began due diligence and provided an initial valuation of $70M-$75M. It upped its offer to $82.5M if the expiry stream revenue and Rightside’s 50% of NameJet were included.

Things looked like they were aligning. Tucows would buy eNom and Party B would buy the rest of the company.

Then, on November 28, party B dropped out.

On January 18, 2017, the board approved selling eNom to Tucows for $83.5 million.

Barclays reached out to 14 potential buyers for the rest of the business and six signed confidentiality agreements.

On April 12, Party D (a large gTLD operator) submitted an indication of interest to buy the registry business for $75M and the aftermarket assets for $11.2. It didn’t want Name.com.

Party F (a leading registry services provider) submitted an indication of interest for the company below the current market share price.

Then on March 24, Party B came to the table again, only to withdraw on March 31.

Donuts entered the picture again on March 27, but on April 12 indicated “Donuts was no longer interested in pursuing a possible strategic transaction with Rightside due to timing considerations in light of changes occurring at Donuts and was withdrawing from the process.”

On May 3, Rightside CEO Taryn Naidu called Donuts CEO Bruce Jaffe to ask him to reconsider.

Party D was still in the mix at this time and Rightside told it that it would need to buy Name.com too. Party D switched course, saying it no longer wanted to buy the aftermarket business and only wanted the registry. It would take Name.com only at a big discount.

Discussions continued with Donuts. On May 26, Donuts offered $10.00 per share and Naidu countered at $11.00. On that day the stock closed at $9.30. Two two parties settled on $10.60, valuing the deal at $213 million.

The deal is expected to close in the third quarter of this year.

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  1. Colin says

    A similar situation playing out currently at Minds + Machines Group Limited ( lse:mmx ) all very interesting! Thank you for sharing.

  2. J.P. says

    This is the saddest goddamn negotiation I have ever seen. What was the rush to sell? Taryn is the worst damn CEO I have ever seen.

      • JP says

        So? The company had $80mm of cash. Will a sale to Donuts suddenly accelerate the domain usage? If it’s an issue of leadership, Taryn should have just resigned.

        The name cheap issue has nothing to do with the primary driver of value, the GTLds.

        This is the sort of stupid thing that weak managers do. Nobody could recreate their gtld portfolio for the price the company was sold at. And you get name.com and aftermarket for free. This is a joke.

        • Andrew Allemann says

          No, it won’t accelerate new TLD usage. As a public company, though, its value would drop if new TLDs continued to struggle since that’s where they bet on growth.

          What do you think their gTLD portfolio was worth? They spend a net of about $20 million to get the 40 TLDs they have. They also clearly went in search of lots of buyers and didn’t get better offers.

          I’m not saying they did everything right (far from it), but I’m curious what you think they should have done differently.

          • JP says

            They went to 14 potential buyers. New TLDs with key words will go up in value over time. Why? Because it’s inevitable. So why sell? Is the value going to deteriorate? No, as you said, TLD usage hasn’t taken off as expected. So they decide to sell? The value will not get worse. .art was just purchased for $25 million. The cost to construct a tld portfolio through the process is very different than the cost of a tld today. You couldn’t actually reconstruct their portfolio even if you wanted to. The cost to buy a keyword domain 20 years ago was $10. Today, it could be worth millions. So one has very little to do with the other. They just did a deal to list platinums in godaddy, they were about to get certification in China, and they were about to go cash flow positive. If you owned this business, wouldn’t you wait until those things played out before selling?

          • Andrew Allemann says

            “New TLDs with key words will go up in value over time”

            Do you know that as a fact? I think they’ve actually gone down over the past couple years. We’ve seen many TLD operators capitulating and realizing their names aren’t worth what they thought…witness Frank Schilling’s move at Uniregistry.

            We’re also likely to see a lot more TLDs in the next round, which might put more pressure on current ones.

            Once they decided to sell eNom (which I think was pressured by the imminent loss of Namecheap), they were too small to remain public. They really need to sell.

            Keep in mind, also, that Taryn didn’t create this company and its strategy. It was spun out of DemandMedia and already had some baggage.

          • JP says

            The best keywords are taken. That’s like saying that more .coms will be created so the old .coms will decrease in value. There is only 1 .live.

            Of course I don’t know that for a fact. It’s a supposition based on analysis, like all investing is done. That’s how investing is done (having been an investor for the last 20 years, I know). We have 40 keyword TLDs. Frank is capitulating because his TLDs were terrible keywords and his strategy was flawed. .live, .news. .video, .social, .sale, .forsale, .pub (lots og ), etc. These are all good terms. Right now, given the value of .name and the aftermarket business, Donuts is effectively getting this portfolio for ~$70-80mm. Well, you couldn’t recreate the portfolio today I believe for that much. So, the question is… why sell an option with no decay in probable decay in value and huge optionality?

            Think of it this way. There are roughly 325mm domains today. Let’s say that doubles to 650mm in 10 years (not an unreasonable growth rate). If we get just 1% share of the market amongst the 40 tld’s owned, that’s 6.5mm domains, at a $20 average renewal, no incremental costs to speak of since it’s effectively a database, this is a business spitting out a ton of cash flow. This would be a billion dollar valuation. That’s 12-15x in 10 years for the value of this business. If, on the other hand, it doesnt do quite that well, it’s still going to have more domains than it does today so you don’t lose money. If it works really well, you have another verisign which is a an even better upside.

            Why is Donuts able to do something that we can’t do?

            This sale is dumb. And with regards to Taryn, he’s just a weak CEO. If his defense is that he was just handed this asset and didn’t know what to do, he should have just quit. He’s a clown.

  3. Raj Rama says

    Taryn is the worst leader in the domain industry. He made the whole company to a house of cards. Keeping NameCheap around for years to inflate numbers was just the worst idea ever. Hopefully we won’t be given another chance to destroy a company again.

  4. Not a domainer says

    Raise your hand if you ever had to justify a domain sale beyond your buddy. Now raise your if you’ve ever managed a public company. Im happy to go to source for both.

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