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Marchex purchasing pile of Web domains

By Kim Peterson
Seattle Times technology reporter

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Marchex said yesterday it has agreed to buy the assets of Name Development, a Virgin Islands company that owns thousands of Web domains, for $164.2 million — a move executives said would expand its distribution footprint for customers.

Seattle-based Marchex, which went public in March, partners with companies that sell items online and helps them advertise through paid listings in search-engine results. It will pay $155.2 million in cash and $9 million in stock for the assets, with the deal estimated to close in the first quarter of next year.

Marchex said it will announce in the next 30 days how it plans to raise the cash for the purchase. Its share price rose 72 cents yesterday to close at $15.57.

Name Development operates in the direct navigation market, which is based on the idea people will go directly to Web sites for information rather than through search engines. If a person is shopping for a video camera, for example, Name Development hopes the shopper will go to www.videocamera.com — a site it owns — to find product information.

Name Development also owns www.debts.com and thousands of other sites, and sells links and other advertising on those sites. Marchex said it expected those sites to report $19 million in ad revenue in 2004.

Buying the sites will give Marchex a portfolio of more than 100,000 Web domains and a base of online user traffic estimated at 17 million, the company said.

Marchex can use the Web domains as new locations in which its customers can advertise.

Marchex Founded: January 2003 Headquarters: Seattle Chief Executive: Russell Horowitz, who is also chairman and treasurer. Horowitz previously founded Go2Net, a Web search and directory company that merged with InfoSpace in 2000. Nine-month snapshot: Marchex reported sales of $28.7 million and a net loss of $1.3 million for the first nine months of the year. Employees: 170 as of March 30 Source: Marchex

There are opportunities to increase traffic to those sites, particularly as Internet usage rises and users become more sophisticated, said Peter Christothoulou, Marchex's chief strategy officer, in a Webcast yesterday announcing the deal.

"Online users are increasingly using direct navigation to find relevant information online as a result of their increasing sophistication in utilizing the Internet as a resource tool," he said.

Terms of the acquisition call for Marchex to pay a $1.5 million "breakup fee" if the deal is not completed by June 30.

Alan Davis, an analyst with Seattle brokerage firm McAdams Wright Ragen, said there is little information available on Name Development, in part because it's in the Virgin Islands and has made few public disclosures.

Marchex executives would not comment on the acquisition beyond yesterday's Webcast.

The deal is Marchex's largest acquisition to date and will probably add to the company's cash flow, Davis said. "On the surface, it looks like not a bad deal at all, but then again we don't know a ton about the company," he said.

Marchex raised its sales projections for 2005 from its previous estimate of at least $60 million. If the purchase were to close Jan. 1, full-year sales would be at least $84 million, it said.

For the first nine months of this year, Marchex reported $28.7 million in sales.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2004 The Seattle Times Company

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