In the website services industry, Mergers and Acquisitions (M&A) are typically driven by several strategic objectives, including market expansion, technological advancement and customer base acquisition. This industry, which encompasses companies offering website building, hosting, domain registration, SEO, digital marketing, and e-commerce solutions, has witnessed notable consolidation in recent years as firms seek competitive advantages in a crowded digital market.
Key Drivers of M&A Activity
Market Consolidation: With thousands of small and mid-sized players, the website services industry is fragmented. Larger players are actively acquiring smaller companies to increase market share and establish dominance, especially in underserved markets or regions with high growth potential.
Technology and Product Integration: Acquisitions are also driven by the need to stay on the cutting edge of technology. Leading firms often acquire specialized SaaS (Software-as-a-Service) providers or innovative digital marketing platforms to integrate new tools, such as AI-powered SEO, analytics, and customer engagement solutions, into their core offerings.
Expanding Customer Base: With intense competition, website service providers target acquisitions that can help them rapidly expand their customer base and diversify revenue streams, particularly in e-commerce and SMB sectors. Acquiring companies that already have strong client relationships can shorten the time to scale and increase recurring revenue.
Cross-Selling Opportunities: Many companies in this industry have seen the value of cross-selling services, such as adding SEO, marketing automation, or customer support, to existing clients. M&A offers an effective pathway to acquire new capabilities that can be monetized across a larger client pool.
Active Buyers
The website services industry features a mix of strategic and financial buyers, including:
Large Tech Platforms: Companies like Wix, Squarespace, and GoDaddy lead M&A in this space. These players focus on acquiring tools that can enhance user experience, improve backend capabilities, or diversify their product offerings (e.g., adding CRM or email marketing solutions).
Private Equity Firms: Given the recurring revenue potential and high scalability of website services, private equity firms have shown strong interest in consolidating smaller players into larger platforms. These firms aim to create a robust, diversified service offering and then sell the bundled company at a premium.
Software and Cloud Companies: Major tech players, such as Microsoft and Google, are increasingly active in acquiring companies related to web hosting, cloud storage, or site management, to integrate into their broader cloud and productivity suites.
Example of Acquisitions
1. Square’s Acquisition of Weebly
Overview: Square, known for its payments solutions, acquired Weebly, a website builder, for $365 million.
Motivation: Square aimed to expand into e-commerce by enabling small businesses to set up online stores easily. Integrating Weebly's platform allowed Square to create an end-to-end solution, blending POS (point of sale) with website and online store management.
Impact: This acquisition enabled Square to compete more effectively with Shopify, giving its customers a seamless experience in both online and offline sales.
2. GoDaddy’s Acquisition of Main Street Hub
Overview: GoDaddy acquired Main Street Hub, a social media management and marketing platform for small businesses, for $125 million.
Motivation: GoDaddy’s primary goal was to expand its suite of services to help small businesses grow their online presence beyond basic website hosting and domain services. Main Street Hub’s tools offered social media marketing capabilities, a valuable add-on for GoDaddy’s customer base.
Impact: This acquisition allowed GoDaddy to diversify its offerings and increase customer lifetime value by offering a broader array of online tools for small businesses.
3. Vista Equity Partners’ Acquisition of Web.com
Overview: Private equity firm Vista Equity Partners acquired Web.com, a web hosting and digital marketing solutions provider, in a deal valued at around $2 billion.
Motivation: Vista saw an opportunity to capitalize on Web.com’s existing customer base and enhance its offerings through further acquisitions or organic growth. This acquisition fit into a broader trend of private equity firms targeting companies with predictable, recurring revenue.
Impact: Vista has since expanded Web.com’s capabilities, aiming to build a comprehensive platform for website building, marketing, and lead generation services targeting SMBs.
4. Squarespace’s Acquisition of Tock (2021)
Overview: Squarespace acquired Tock, a reservation and hospitality management platform, for $400 million.
Motivation: Squarespace recognized that many restaurants and hospitality businesses require both website and booking solutions. By integrating Tock, Squarespace could offer these clients a more holistic platform.
Impact: This acquisition allowed Squarespace to compete in the hospitality and restaurant industry by providing online booking and reservation solutions, enhancing its offerings and making its platform more versatile for hospitality customers.
5. NewFold Digital’s Acquisition of Constant Contact
Overview: Endurance International Group acquired Constant Contact, an email marketing company, for $1.1 billion.
Motivation: Endurance, known for its web hosting services, wanted to expand into digital marketing to offer a more comprehensive suite of online services to its customers. Constant Contact’s email marketing tools provided a key addition to Endurance’s portfolio.
Impact: This acquisition enabled Endurance to offer email marketing directly to its web hosting customers, increasing cross-sell opportunities and solidifying its position as a one-stop-shop for SMB digital needs.
6. WordPress (Automattic) Acquisition of WooCommerce
Overview: Automattic, the company behind WordPress, acquired WooCommerce, a popular e-commerce plugin for WordPress, for an undisclosed amount.
Motivation: WooCommerce was already a widely-used tool within the WordPress ecosystem. By acquiring WooCommerce, Automattic could provide built-in e-commerce capabilities, helping WordPress users more easily create and manage online stores.
Impact: WooCommerce became one of the most widely used e-commerce platforms globally, strengthening WordPress’s position as a leading content management system for e-commerce.
Typical Multiples
Valuation multiples in the website services industry vary based on factors like revenue scale, growth rate, profitability, and customer base stability. However, typical EBITDA multiples range as follows:
Small to Medium Businesses (SMBs): Smaller website services companies with less than $10 million in revenue often see EBITDA multiples between 5x and 8x.
Mid-Sized Companies: Companies generating between $10 million and $50 million in revenue, with strong recurring revenue, are valued between 8x and 12x EBITDA. Investors are willing to pay a premium for businesses with high annual revenue retention rates and diversified customer bases.
Large Firms with Dominant Market Position: For major players generating $100 million+ in revenue, multiples can go as high as 15x or even 20x EBITDA, especially if the company has strong brand recognition, a large user base, and additional complementary services.
Summary
Overall, the website services industry is highly dynamic, with M&A activity fuelled by the need for innovation, user acquisition, and cross-platform capabilities. Larger firms will likely continue to acquire niche technology providers and regional players to maintain their competitive edge. For private equity, there remains a strong appetite for consolidating smaller website services companies, given the potential for high returns due to recurring revenues and a strong demand for digital transformation services.
Author
Written by Gianluca Caccamo, leader in connecting People and Data for Strategic Partnerships, counting more than 15 years at companies like Google, Pinterest and Wix among others.
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