Parallel Paths of Constant Contact, Endurance Converge in $1.1B Union
Constant Contact and Endurance International Group Holdings have followed similar paths. Both got their start in the 1990s, offering Web services to small businesses. Both survived the dot-com crash, built up their companies, and went public.
And now, their paths have collided in a $1.1 billion deal that combines two of Massachusetts’ major software companies that mainly serve small businesses. Burlington-based Endurance (NASDAQ: EIGI) is paying cash to acquire Waltham-based Constant Contact (NASDAQ: CTCT). The boards of both companies have approved the deal; it still needs the green light from Constant Contact shareholders, but is expected to close early next year.
For Constant Contact CEO Gail Goodman, it’s the bittersweet end of a 16-year journey. She joined the company as employee number seven.
“When I started in April of ’99, we had no customers and no revenue,” Goodman says in a phone interview. “I’ve had an unbelievable run to 650,000 customers and trailing 12-month revenues of $350 million.”
She plans to stay on through the post-acquisition transition, but will then leave the company. The 55-year-old has “no clue” what she’ll do next.
It’s also too early to say with certainty what will happen to Constant Contact’s 1,400 employees at its six U.S. offices and one U.K. branch, Goodman says. “Clearly, there will be some overlap in corporate functions, but we expect the vast majority of employees will be part of the ongoing entity.”
Constant Contact was founded in the mid-1990s as Roving Software. It became a leader in e-mail marketing and online surveys for small businesses. It raised $36 million from investors before a $107 million IPO in 2007, Goodman says.
In its early days, Constant Contact was in the vanguard, she says, of the now-ubiquitous “freemium” software-as-a-service business model that involves driving visitors to a website, getting them to sign up for a free service, convincing them to start paying for additional products, and retaining those customers.
“To create a business of scale at small dollar amounts, it takes a while,” Goodman says. “I call it the long, slow SaaS ramp of death because you get to 100 customers and, wow, at $20 a month, that means you’ve got $2,000. That doesn’t pay very many folks. So, you need to get to thousands” of customers.
Joining forces with Endurance means Constant Contact can now reach millions of customers—the combined companies have more than 5 million around the world.
Endurance was founded in 1997 as BizLand.com, focused on helping small businesses establish a Web presence. The company almost perished in the dot-com crash, but CEO Hari Ravichandran was able to navigate rough waters and turn Endurance into a multi-faceted tech company, built mostly via acquisitions. Today, Endurance provides services like hosting, cloud-based storage, e-commerce help, design tools, and more.
Endurance raised $252 million in a 2013 IPO, and it employs 2,700 people in the U.S., U.K., India, Israel, and Brazil.
Constant Contact and Endurance have been familiar with each other “since the Roving-BizLand days,” Goodman says. In the past year, the pair struck a cross-selling partnership in which Constant Contact products have been marketed to customers of three Endurance subsidiaries—Bluehost, HostGator, and iPage. “Five percent of our new customer growth is coming from them. They would say we’ve just scratched the surface” of that partnership, Goodman says.
The acquisition is a way to strengthen those ties and boost sales. Endurance anticipates adjusted revenue of the combined companies to hit $1.1 billion this fiscal year and grow 10 to 12 percent next year.
“It became clear we could do so much more if we were part of the same company,” Goodman says. “It really was one of those really great acquisitions that starts from a partnership. And so we go into this knowing each other fairly well and knowing we can cross–sell into their customer base.”
“We have long admired Constant Contact and its strong management team, and all that it has accomplished in building a great product set, as well as building an influential culture and team,” Ravichandran says in a prepared statement. “We know that once small businesses have a Web presence, they look for other products and services that will help them to grow their business. We see an opportunity to help our growing subscriber base meet their goals through an integrated suite of solutions, and we are excited to add this talented team to our roster.”
As Endurance has done with its other purchases, it will keep the Constant Contact brand name, Goodman says.
“They operate more as a, I would call it a house of brands, all focused on a similar market,” she says. “But by having multiple brands, they can address very different segments of the market.”