We spend a lot of time speaking with our friends online, and we frequently use emoticons to express our feelings during these conversations. It's fun, it's nice, it's amusing, and it makes us feel good. This fun, which usually costs us nothing, has led to the emergence of many companies that make a lot of money, and one of them is Israel's SweetPacks Ltd., the acquisition of which by Perion Networks Inc. (Nasdaq:PERI: TASE:PERI) was completed last week.
Perion acquired SweetPacks in cash and shares in a three-part deal: $10 million in cash and 1.99 million Perion shares (which are currently worth $19.4 million); $7.5 million in cash to be paid within a year of the closing of the deal; and a further $7.5 million in cash to be paid within 18 months of the closing. This brings the value of the acquisition to a maximum of $44.4 million, making SweetPacks the largest acquisition in Perion's history.
Perion, formerly Incredimail, grew as a developer of free apps (mostly smileys) for e-mail users. Over time, mostly through acquisitions, the company has expanded its products line in order to become a leader in the Internet consumer field. So far, Perion seems to be headed down the right road, and the acquisition of SweetPacks should boost the company's revenue to over $100 million next year.
SweetPacks was founded nine years ago. CEO Nadav Goshen took up the post two and half years ago. The company has raised a few hundred thousand dollars since it founded, and its largest shareholders are a group of Jewish business people (who own over half of its share capital), with the rest of the shares held by the company's founders, employees, and small investors, including former 888 Holding plc (LSE:888) Gigi Levy.
Goshen says that SweetPacks was not sold because of a lack of confidence in the company's future; the opposite was true: "They weren’t interested in an exit, but to make SweetPacks part of something great, hence the link-up with Perion," he says.
A look at SweetPacks' figures indicates what Goshen means. The company, which has ridden the wave, is expected to post at least $35 million revenue in 2012 (double the revenue in 2011) and earnings before interest, taxes, depreciation and amortization (EBITDA) of $10 million (a margin of 35%). Google Inc. (Nasdaq: GOOG) is largely responsible for this growth, accounting for 80% of the company's revenue (through SweetPacks' participation in Google's AdSense program), and, just as importantly, for SweetPacks' new thinking.
As SweetPacks' name implies, it offers a range of solutions for Internet users to create a friendlier online work experience. In addition to the original product, SweetIM, the company has developed a video files converter, games, an English spellchecker and grammar checker, and adapted the SweetIM for Facebook users, ranging from its chat service to each user's wall. All these solutions can be downloaded for free, and the company's revenue comes from uploads of its toolbar, which is automatically linked to Google.
Although SweetPacks' solutions are free, and have the sole purpose of making the Internet more enjoyable, Goshen sees the company's business are much more complex. "When I joined the company, I realized that the basis for success is building an infrastructure for managing users, which means collecting as much data as possible about each user, and using this database to offer every user the most suitable product," he says.
Published by Globes [online], Israel business news - www.globes-online.com - on December 9, 2012
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