CentralNic Group shareholders have had to wait a few months to see details of its acquisition of fellow internet domain name specialist KeyDrive.
Shares were suspended in March as the fine points of the deal were thrashed out, but now back trading again the wait looks to have been worthwhile.
At a stroke, CentralNic will be propelled to just one place below the top ten of internet domain groups. That list contains Go-Daddy, United Internet and Alibaba, so immediately the group is rubbing shoulders with a different scale of operator.
CentralNic Group has acquired fellow internet domain name specialist KeyDrive
It also moves the AIM-listed group a step closer its ambition to become one of the ‘world leaders’ of the top-level domain sector.
Top-level domains or TLDs are the label given to the very last section of a web address, located after the last dot – so suffixes such as .com, .org and .gov.
Crucial to CentralNic’s growth so far has been its relationship with XYZ.COM, which owns the .xyz TLD, one of the most popular domains in the world.
CentralNic receives a fixed fee based on the volume of .xyz registrations and subscriptions managed. It’s a strong business but KeyDrive takes the group into a different league.
For a start, its revenues in 2017 were $58.3million, around one and a half times more than CentralNic, while underlying profits were $5.9million.
It’s the development possibilities though that appeal to Ben Crawford, CentralNic’s chief executive. ‘It gives us scale and also makes it into really a pure play recurring revenue business,’ he said.
In the past, the group made some profit by trading in premium domains. With KeyDrive, the focus is fully on selling subscription products such as domain names and the add-on products (hosting email and so on).
The group has customers all over the world, but going forward the focus will be on emerging markets.
Markets in Western Europe and the US are mature and dominated by established names such as Go-Daddy, while emerging markets are nowhere near so developed and this is where the growth is, says Crawford.
Alongside domain names such as .xyz, CentralNic’s registry division also powers country codes such as .sk, the domain name for Slovakia.
This is a phenomenal business says Crawford as it has 350,000 customers who renew every year as it’s the only thing on the internet that indicates it is a Slovak language website or a Slovakian business.
Handily, KeyDrive has what’s called a reseller platform that can connect these country codes up with all the big retailers around the world. It is also used by large companies with some of the best-known brands in the world.
They outsource the management of all their domain names in a similar manner to the way trademarks are handled. ‘It now gives us a platform for every single market in our industry,’ said Crawford.
CentralNic’s registry division powers country codes such as .sk, the domain name for Slovakia (Pictured: the capital of Bratislav)
He explained another great thing about its business is that you can’t buy a domain name outright, you just buy the use of it for a year. And if you don’t renew, your website stops working and your email stops working. So, by and large people always renew. Add that to the KeyDrive platform and it becomes a very powerful tool.
The consideration for the deal was $35.8million, with a further performance-based earn-out of up to $10.5million.
A placing of CentralNic shares at 52p each to raise £24million to pay for the cash component of the acquisition has brought in a new group of institutional shareholders.
KeyDrive’s largest shareholder is Alex Siffrin, who took his consideration in CentralNic shares and will work with the enlarged group going forward.
CentralNic is doing well enough under its own steam. Numbers for 2017 showed a healthy improvement during the year with revenues up by 10 per cent and underlying profits 20 per cent better at £6.6million.
How quickly the benefits of the KeyDrive deal come through depends on how smoothly integration goes but previous acquisitions have been handled adroitly by CentralNic and Crawford expects integration to be rapid this time as well.
CentralNic’s strength is sales and KeyDrive’s is technical ability, so putting them together you have got superior products and superior sales, he said.
‘We expect to win a lot of customers all over the world.’
Shareholder approval for the deal is required at a meeting at the start of August, but house broker Zeus Capital has already indicated 100p per share as a new shares price target compared to a market price of 55p currently.