Omniture has acquired Visual Sciences in a stock cash deal valued at approximately $394m to create the world’s largest pure-play web analytics firm and turn the screw on smaller rivals.
Orem, Utah-based Omniture will pay combination of stock and cash for Visual Sciences, which was founded in 1996 as WebSideStory, but changed its name earlier this year. Visual Sciences is in fact the name of one of WebSideStory’s subsidiaries, created following its acquisition of Visual Sciences, a data analysis and visualization software firm for $57m in February 2006. WebSideStory changed its name to that of the subsidiary earlier this year.
Under the terms, Visual Sciences shareholders will get $2.39 in cash per share and a 0.49 share of Omniture stock for each Visual Sciences share held. That calculates overall to $20.07 a share, based on Omniture’s trading price last Friday.
Visual Sciences stockholders will own around 14% of the combined company on a pro forma basis when the deal is finalized.
Visual Sciences has a high degree of institutional ownership with Fidelity and T Rowe Price holding significant stakes in the company. The latter owned 20.8m shares at the end of June.
The acquisition is still subject to regulatory and shareholder approval and is expected to close in early-to-mid 2008 after which Omniture expects the transaction to add to its earnings immediately on a non-GAAP basis.
This is the first public-to-public merger of two on-demand, or software-as-a-service (SaaS) vendors. SaaS is a model of delivery for software products over the Internet, typically as a subscription.
Omniture, which had its IPO in late June 2006, now becomes the biggest independent web analytics firm in the market by quite a stretch. Both companies play in the so-called online business optimization space, which enables companies to manage and enhance online, offline and multi-channel business initiatives. Technically it’s really a fancy label for web analytics with related online digital marketing, search optimization, and keyword bid management capabilities rolled into a single platform.
Visual Sciences’ software is used by over 1,500 customers worldwide to analyze website customer behavior, contact centers, retail point of sale systems and messaging systems in real-time. The platform uses analytics to automatically optimize website performance and content and drive related marketing applications. The company has several offices dotted around the US as well as a European headquarters in Amsterdam, The Netherlands.
WebSideStory’s main web analytics software is called HBX (Hitbox) Analytics, and is part of the WebSideStory Suite, which also search optimization, web content publishing and keyword bid management modules.
The Visual Sciences data analytic tools are packaged under the Platform 5 brand and include modules for website, caller and email activity analysis. Meanwhile Omniture’s flagship web analytics platform is called SiteCatalyst and includes visitor profiling segmentation, and self-optimizing site search. The company also develops software for keyword search automation and online marketing integration.
Visual Sciences will add to Omniture’s 2,200 customers spread across 75 countries worldwide, including major online brands like AOL, eBay and Forbes.com as well as large firms like Wal-Mart and General Motors.
The combined revenue, based on the last full year results of both companies, will be around $135m.
Omniture expects to exceed its third and fourth quarter on revenue and EPS.
In August Visual Sciences reported second quarter revenue up 17% to $19.7m and net loss of $0.2m. The company said last week that it expects to beat its third-quarter outlook.
Omniture officials pointed to a substantial increase in scale and resources and allow the combined firm to meet a broader set of customer needs and grow much more quickly.
We believe that in addition to being financially accretive to our shareholders, this is a strategic investment, said Josh James, CEO and co-founder of Omniture, pointing to significant gains for both customers and partners.
Little, however, was said about the functional overlaps between Hitbox, SiteCatalyst and Platform 5, though Jim MacIntyre, CEO of Visual Sciences, said in a statement that the combined company would provide our customers with a richer solution set.
Overlooking the obvious product overlaps between the two companies platforms, which used to compete head-to-head on deals, James pointed to considerable cross-selling opportunity across a combined base of over 4,000 customers.
The acquisition will also raise the credibility of Omniture’s management team which is lead by a relatively inexperienced CEO — James is only in his mid-30s and is very much a product of the dot.com era, which has concerned some financial analysts that track the firm.
Some web analytics rivals are predictably skeptical about the merger.
Joe Davis, CEO of San Mateo, California-based Coremetrics, believes that while the acquisition might be good new for Omniture investors, it could cause confusion for Visual Sciences customers.
In the conference call, held after the merger, analysts including Morgan Stanley called it a financial transaction.
Omniture also mentioned in the call that they will provide a compelling offer to Visual Sciences’ Hitbox customers to migrate to Omniture’s products. In addition, they will migrate some customers to term licenses.
From the conference call, it appears that the surviving products will be Omniture’s. All of these changes will likely result in chaos and confusion for Visual Sciences’ customer base.
Nevertheless Wall Street seems to like the deal as shares of both companies surged last Friday after the deal was announced. Omniture’s stock rose above 14% to $36.08 during the midday trade on Nasdaq. The stock has recently been trading as high as $38.57, its highest point since it went public last year. The recent gains follow a run-up of 120% since the start of this year.
Visual Sciences shares also jumped nearly 13% in the Nasdaq mid-morning trade last Friday to reach $18.88. The stock has been trading at between $10.44 and $19.86 in the past year.
Analysts and investors have speculated all summer of a possible buyout of Visual Sciences. That has now come to fruition. However since this is a merger of the market’s top-two web analytics firms it could well run into some extra antitrust scrutiny, but is likely to be passed by regulators.
Omniture will now cement itself as the new 900 lb gorilla in the high-end web analytics market, bulking it up sufficiently to out-muscle its competitors. In fact this deal looks like a market-share land grab by Omniture which will now boast the biggest customer base of any web analytics pure-play by some margin. The SaaS model pursued by both forms could also lead to substantial costs savings in the near term as well.
It will be interesting to see how competitors react. The web analytics market is still quite fragmented with companies like Coremetrics, WebTrends and Nedstat vying for business. New entrants like Google and Microsoft have also recently bought free and less sophisticated versions of web analytics tools to market. While Omniture might now be less pressured to lower its subscription prices, both Google and Microsoft could also be motivated to invest more heavily in their free products, which in turn would turn the heat up on Omniture.
The deal seems to be getting a wave of positive support from Wall Street. But it remains to be seen if investors will get behind the Omniture’s new pricey stock. Right now it trades at around times forward earnings and has a lofty price-over-earnings-to-growth ratio of 4.3.