Leading domain registration and web hosting provider GoDaddy Inc. (NYSE:GDDY) agreed to acquire Host Europe Group (“HEG”), a European web hosting provider. The deal is valued at €1.69 billion (US$1.79 billion), including €605 million to be paid to the selling shareholders and €1.08 billion in assumed net debt.
The deal is expected to close in the second quarter of 2017, subject to customary regulatory and other closing requirements. In response to the news, shares went up more than 4% to a high of $36.45, eventually closing at $36.37.
Also, shares of GoDaddy have been steadily treading higher on a year-to-date basis. The stock generated a return of 8.36% compared with the Zacks Internet Services- Delivery industry’s loss of 7.77%.
More About Host Europe Group
Host Europe Group is one of Europe's largest independent web hosting firms. It operates brands such as 123Reg, Domain Factory, Heart Internet and Host Europe.
Notably, for 2016, the company is on track to generate approximately US$328 million in bookings and approximately US$139 million in adjusted EBITDA.
Host Europe Group was purchased by private equity owner Cinven in 2013 for £438 million and since then has done well to evolve as a leader in its field.
Banks including Barclays (LON:BARC), Citigroup (NYSE:C), Deutsche Bank (DE:DBKGn) and Royal Bank of Canada will debt finance this potential sale for $1.69 billion. It appears that Europe’s highly liquid loan market is eagerly waiting to grab the opportunity.
The deal will complement GoDaddy's business as HEG has a similar customer base comprising small ventures and web professionals. This will give GoDaddy a better understanding of the needs of customers.
Blake Irving, GoDaddy’s Chief Executive said HEG — like his company — is extremely attentive to the web needs of small businesses. He said, “They are completely aligned with what we are doing.”
Our Take
The acquisition makes sense as HEG will strengthen GoDaddy’s foothold in the European market.
In Europe, HEG has more than 1.7 million customers, most of them in Germany and the U.K. Therefore the deal will expedite GoDaddy’s expansion throughout the region, keeping in sync with the company’s strategy to expand internationally. In the last reported quarter, GoDaddy reported $129.2 million in international revenue, up 21% year over year.
Going forward, investments in products, its technology platform and customer care as well as delivery of innovative and increasingly personalized products and services globally should continue to expand its international presence.
Also, GoDaddy has been targeting a shift toward dynamic online presence for small business. The company has branched into the more profitable business of hosting websites for small businesses and consumers. The buyout of HEG should expedite this shift.
The acquisition will significantly boost GoDaddy’s Hosting and Presence revenues. Last quarter, this business generated $174.1 million and accounted for 36.9% of total revenue. It grew 3.9% sequentially and 4.2% year over year. The deal is expected to expand revenues in this space.
Zacks Rank & Stocks to Consider
Currently, GoDaddy has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are Cognex Corporation (NASDAQ:CGNX) and Itron, Inc. (NASDAQ:ITRI) , sporting a Zacks Rank #1 (Strong Buy), and Fortive Corporation (NYSE:FTV) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Cognex Corporation delivered a positive earnings surprise of 24.92% in the trailing four quarters.
Itron, Inc. delivered a positive earnings surprise of 30.55%, on average, in the trailing four quarters.
Fortive Corporation delivered a positive earnings surprise of 8.42% in the trailing four quarters.
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