(Reuters) - Endurance International Group Holdings Inc said it would buy email marketer Constant Contact Inc in a $1.1 billion deal on Monday that surprised investors and sent shares lower by 20 percent.
Endurance International’s Chief Executive Hari Ravichandran said in an interview that buying Constant Contact is a sound investment that will give the company access to 500,000 new customers.
“I think the market will start to understand it a little bit better, but there’s definitely a knee-jerk reaction. The unknown always causes anxiety to public investors,” he said.
The deal, which is Endurance’s largest to date, will add Constant Contact’s online marketing tools such as email marketing, events management and social media integration to Endurance’s portfolio of Web-hosting software for small and medium-sized businesses.
Endurance, whose brands include BigRock, HostGator and FatCow.com, already has an agreement to provide Constant Contact’s email marketing tools to its subscribers.
Cowen analyst Gregg Moskowitz said in a research note that revenue synergies of the deal look limited and he questioned how many of Endurance’s small business customers will be willing to pay for Constant Contact’s solutions.
Constant Contact’s shares were trading 22 percent higher, up $5.78, at $31.88 in afternoon trading on Monday. Endurance slipped nearly 20 percent to $10.72 per share. [nGNXVESUYa]
Constant Contact was founded as “Roving Software” in 1995 in an attic in Brookline, Massachusetts. Its shares plunged in April after it reported dismal subscriber additions.
Endurance’s offer of $32 per share in cash represents a 22.6 percent premium to Constant Contact’s close on Friday, but is well below the stock’s record-high of $43.18 in August.
Constant Contact’s merger agreement has a “go-shop” provision where it can solicit other offers until Nov. 21, according to a regulatory filing.
The deal is expected to close in the first quarter of 2016.
Constant Contact targets small businesses and non-profit organizations, offering them colorful templates to advertise products through emails.
The company, which was called BizLand before the dot.com bust, now has over 3 million subscribers. With the deal, it expects boosting its paying subscribers to over 5 million.
Endurance lowered its adjusted revenue forecast for 2015 to $745 million-$750 million, below the average analyst estimate of $751.9 million, according to Thomson Reuters I/B/E/S.
It had previously forecast adjusted revenue of $745 million-$755 million.
Goldman Sachs, Credit Suisse and Allen & Co were financial advisers for Endurance, while Morgan Stanley and Raymond James advised for Constant Contact.
Reporting by Anya George Tharakan in Bengaluru; Editing by Saumyadeb Chakrabarty and Alan Crosby