news Hosting and domain name specialist Melbourne IT announced today that it had entered into an agreement to acquire its biggest rival, Netregistry for $50.4 million, in a move that will ensure the fortunes of the company’s founder Larry Bloch but also potentially create a giant with close to monopoly powers over the Australian domain name space.
“The proposed transaction will bring together two of Australia’s leading web-services businesses, generating significant benefits for customers, employees and shareholders of both companies,” said Peter Findlay, acting CEO of Melbourne IT, in a statement announcing the deal.
Larry Bloch, founder and CEO of Netregistry commented: “This transaction validates the tremendous success the Netregistry team have had since 1997 in building a leading web services business. The merged entity will benefit from the leading products, management team and efficiencies of both companies. I look forward to joining the board of Melbourne IT and being involved as the businesses are integrated, evolve and grow their services”.
The payment will be made via a combination of cash and scrip at the election of the Netregistry shareholders. Shares constituting between 4.99% and 9.99% of Melbourne IT’s outstanding shares will be offered to Netregistry shareholders with the balance in cash. This translates into between 4.3 million and 9.3 million shares in Melbourne IT and between $38 million and $45 million in cash.
Simon Jones, Melbourne IT’s Chairman commented: “Melbourne IT and Netregistry have long-held respect for the other’s business; they will now integrate for mutual benefit. We look forward to welcoming the Netregistry team and jointly tackling the growth opportunities in online services. I am particularly looking forward to welcoming Larry Bloch to the Melbourne IT Board with his depth of knowledge of the online services sector and thought leadership.”
According to Melbourne IT, the acquisition has numerous benefits for Melbourne IT and Netregistry, including: the assimilation of customer-facing platforms, which the pair said would “enhance customer experience and product usability”; the ability to offer “best in class domain registration & management, email and web hosting products”; the integration of Netregistry’s management team, with “deep experience in the SMB segment” and efficiencies in the consolidation of infrastructure.
The transaction is subject to regulatory approvals, including by .au Domain Administration (auDA), and is expected to close during the first half of calendar 2014. Melbourne IT was advised on the acquisition by Gresham and Gilbert + Tobin, supported by PwC and Ernst & Young. Netregistry was advised by Grant Samuel Corporate Finance and Allen & Overy.
The acquisition has the potential to consolidate Australia’s small domain name industry sharply, with Netregistry being Melbourne IT’s largest Australian rival in terms of domain names and a strong web hosting rival as well.
Melbourne IT was initially the only domain name seller in Australia in the 1990’s, but the market was eventually opened up to competing sellers. Netregistry quickly took a large slice of the market, including through several acquisitions of its own, such as PlanetDomain in 2007 and TPP Internet in 2009. In 2007 Netregistry said it had 27 percent of market share of the Australian domain name market, and in 2009 Netregistry said it had overtaken Melbourne IT has the largest seller of domain names in Australia, as well as being 20 percent ahead of the number three player.
It is unclear at this point whether .au Domain Administration, the Australian domain name regulator, could block the merger on competition grounds, but the Australian Competition and Consumer Commission would be likely to have the power to do so.
The news will also bring one of the most outspoken and high-profile executives in Australia’s Internet space within the wings of one of its oldest companies, and a long-term rival. Netregistry founder Larry Bloch is known in the industry for his ability to create controversy. For example, in May 2009 the executive was forced to defend Netregistry’s use of women dresses in naughty nurse outfits to promote Netregistry at Australia’s largest trade fair CeBIT.
According to Bloch, as reported by ZDNet at the time, the costumes really had all been about the medical theme — a little fun — and were not supposed to have been offensive. “I think it’s political correctness going gang busters,” he said.
I don’t have a lot of data in front of me regarding the actual market share of Netregistry and Melbourne IT in the domain name and hosting space. However, I suspect that between them, the pair would be likely to command a massive slice of the Australian market in these areas.
Web hosting isn’t really an issue … it’s easy enough to set up an Amazon Web Services server these days, and there are plenty of options competing with the pair. But when it comes to domain names … well, put it this way: Pretty much everyone I know is with Melbourne IT, Netregistry or both. Delimiter uses Netregistry for our cluster of domain name assets. I’m not thrilled by the news that I am suddenly a Melbourne IT customer, and I’m sure many other people will be equally unhappy at the prospect.
I don’t want to deny Bloch his multi-million-dollar payday. But personally I think the ACCC or auDA will need to look at blocking this deal. It’s clearly bad news for Australian consumers and will drastically limit competition in the domain name space. I don’t think Netregistry and Melbourne IT should be allowed to come together. I’d much rather see Bloch find another path if he wants to find an exit strategy for his group.
Image credit: Netregistry