D&B has announced a definitive agreement to acquire Hoover's, the Austin, Texas-based company that calls itself "The Business Information Authority." The reasons given for the D&B purchase include Hoover's strong subscription business, complementary products, and strength in the small-business market. D&B will pay $7 a share for Hoover's shares, valuing the deal at $117 million; with Hoover's cash of $36 million, it means D&B is effectively paying just $81 million. The acquisition is expected to close in the first quarter of 2003, subject to the usual approvals.
Hoover's had been looking like a takeover candidate. At a time when many companies are struggling with the difficult economic climate, Hoover's recently reported annual revenue of $32 million and its first full year of profitability, with net income of $1 million.
That's not to say that Hoover's didn't struggle to get there. In 2001, the company closed its European subsidiary, cut staff, discontinued unprofitable products, and refocused its business on subscriptions (see http://newsbreaks.infotoday.com/nbreader.asp?ArticleID=17496). Hoover's subscription revenues, in the quarter ended Sept. 30, 2002, represented 81 percent of its total revenues, and grew 22 percent over the comparable prior-year period. This success in subscription growth must have caught the attention of D&B.
"Hoover's is a natural fit for D&B because its strengths align with four of our areas of strategic focus," said Allan Z. Loren, chairman and CEO of D&B. "Its core subscription business has a track record of growth and the potential for much more. This is consistent with our aspiration to become a growth company. In addition, Hoover's products complement our Sales & Marketing Solutions, an area where we are investing for growth. Further, Hoover's has made solid inroads with small-business customers, a segment that we have just begun to tap. And finally, with the majority of its revenue delivered online, Hoover's business model is consistent with our aspiration to have an important presence on the Web."
This looks like a smart move by D&B, with its desire to grow its e-business and tap into the small-business market. It also makes more sense for them to buy rather than to build this business. Loren said that D&B currently does business with less than one percent of the estimated 11 million small businesses in the U.S.
D&B plans to maintain Hoover's Online as a separate product offering of its E-Business Solutions division. Jeffrey Tarr, Hoover's chairman and CEO, will continue to lead the Hoover's business from its Austin location. Hoover's has approximately 230 employees, and offices in Austin, New York City, and San Francisco. Layoffs are expected to be minimal.
According to the announcement, D&B plans to accelerate growth of Hoover's Online subscription business and improve Hoover's profitability. It expects to do this primarily by expanding the distribution of Hoover's products by generating sales leads through the millions of customer contacts made each year by D&B's telesales channels. As a result, D&B expects Hoover's revenue to almost double by 2005.
The deal has not been without controversy. An article in the Austin American-Statesman immediately after the announcement reported that some investors and analysts were critical of the low purchase price, but other analysts said the deal made sense because each company's content complements the other's.
One investor, Mario Cibelli, is vehemently opposed to the acquisition, saying the price is "grossly inadequate." Cibelli and the group he represents, Marathon Partners, LP, is the third largest shareholder, owning 9.02 percent of the company with nearly 1.4 million shares. In an irate letter to Tarr (copy attached to a Schedule 13D filing to the SEC), Cibelli stated: "I do know that you and the Board have given away the Company to D&B for a song and dance and even offered to pay them a break-up fee of $5.7 million should another suitor show up."
A Hoover's representative confirmed the break-up fee as a customary condition in these transactions. While he would not comment on whether Hoover's had received bids from other potential buyers, he indicated that a forthcoming proxy filing to the SEC would provide additional details of the deal. Hoover's board of directors has unanimously approved the deal and Hoover's directors, executive officers, and certain other shareholders, who collectively represent approximately 36 percent of outstanding shares, have agreed to vote in favor of the transaction.
Hoover's is known for the high quality of its editorial content, written by a staff of industry experts, and for its coverage of private companies as well as public. Some searchers worry about Hoover's future under new ownership and the possible loss of the valued Hoover's content that has been available for free. Hoover's has used the free offerings as a way to attract users to its reasonably priced premium content. A Hoover's spokesperson said that "for the foreseeable future there would be no inherent change to Hoover's strategies."
Hoover's was founded in 1990 as The Reference Press, a publisher of reference books, and became a public company in 1999. The company has a proprietary database covering more than 18,000 public and private companies worldwide, 300 industries, and 170,000 corporate executives. Hoover's customer base primarily consists of small and mid-sized businesses.
D&B was founded as the Mercantile Agency in New York City in 1841, and claims to be the world's first business information provider. In October 2001, the company transitioned the trade name Dun & Bradstreet to D&B, its widely used and very recognizable company acronym. The D&B Corp., based in Short Hills, New Jersey, has about 8,000 employees worldwide, and reported revenue for 2001 of approximately $1.2 billion.