Register.com is a leading provider of domain name registration and Internet services to small and medium-sized businesses. With nearly three million domain names under management, Register.com has built a brand based on quality services.The Problem:
Register.com was a pioneering internet company and launched a very successful IPO during the Nasdaq bubble. Later on, however, as demand for domain names slowed, Register.com’s revenues and market value fell dramatically and the company faced multiple challenges. Low-cost providers had exploded onto the domain registration market and taken significant share from incumbents like Register.com, leading to revenue erosion. To revive growth, Register.com decided to begin marketing value-added services directly to its customers instead of relying on third party providers. This business model shift along with complex revenue recognition rules exacerbated the volatility in Register.com’s revenues and profitability. Finally, the new Sarbanes-Oxley rules exposed several Material Control Weaknesses in Register.com’s systems, leading to several costly financial restatements. All of these events lead to a precipitous decline in Register.com’s market value, attracting several shareholder activists agitating for change.Vector Insight:
Through all this complexity, Vector saw great value in Register.com. Low-cost competitors were still continuing to gain share in the overall market, but revenue at Register.com was beginning to stabilize as management refocused its efforts around its core customers. Revenue from value-added services was beginning to grow rapidly, surpassing the revenue lost from third party partners, and had the potential to become an engine for sustainable growth. Register.com was generating a significant amount of cash, even while spending heavily on public company costs and updating its technology.The Solution:
Vector and the Register.com management team partnered to take Register.com private through an all cash buy-out. Vector made a cash offer for all outstanding shares of Register.com, providing the current shareholders with a significant premium and serving as a white knight. After the transaction, Vector, its co-investment partners and the employees of Register.com owned 100% of a private Register.com. As a private company, Register.com would be free to make long-term value maximizing decisions for the business as well as shed all of the costs and distractions of being a small public company forced to comply with Sarbanes-Oxley requirements.Operational Changes:
Relieved from the short-term demands of public shareholders, the management team at Register.com was able to realize dramatic improvements to the business. Vector led projects to introduce new revenue streams, divested a non-strategic unprofitable division, recruited a new CEO and management team, improved operating efficiency, enhanced customer service capabilities and broadened product offerings to better serve customer needs. Based on the proceeds of the divestiture, the financial strength of its turnaround and debt recapitalizations in 2006 and 2007, Register.com distributed returns well in excess of invested capital within the first 20 months of the investment.Register.com Today:
Register.com had regained its former status as a leader in the domain name registration industry and became one of the most profitable companies in its sector. Even through the recent economic downturn, the Company remained solidly profitable. Its strong product portfolio, sizeable customer base and streamlined operations made Register.com an attractive strategic acquisition target. In July 2010, Register.com was sold to Web.com for $135 million. This acquisition will provide both revenue and cost synergies for Web.com and creates one of the largest online marketing and web services companies serving small businesses.