The merger between Perion Network Ltd. (Nasdaq:PERI: TASE:PERI) and the Client Connect business of Conduit Ltd. did a big favor for people who have been trying to follow the latter for years, in an effort to understand what is happening beneath the surface of the successful private company. The numbers about Conduit's Client Connect unit, the company's original business, have emerged: a non-GAAP operating profit margin of 32%, and a net profit of $77 million a year.
There are several reasons for the merger. First, for more than two years, Conduit has been seeking a way to distance itself, both strategically and image-wise, from toolbars, the springboard for its business, but whose future worthwhileness is uncertain. The merger will enable the company to compensate its employees in an orderly way, which can be done fairly easily as a public company; it arranges an "exit" for investors; and should provide the merged company with a future growth path.
In the beginning, Conduit entered a completely new market. When it signed a cooperation agreement with Google Inc. (Nasdaq: GOOG) in 2006, Conduit's founders were so surprised by the success that they took the terms offered, even when it turned out that they were discriminatory compared with other companies.
"They said what they wanted, and we said, 'Thank you'," Conduit co-founder and CEO Ronen Shilo told "Globes" two years ago. "It later turned out that companies of our size received much better terms, but I thanked my good luck."
Conduit subsequently partnered with Microsoft Corporation's (Nasdaq: MSFT) Bing and with other parties, and became, through the search engine that accompanied its toolbar, one of the biggest traffic generators in Internet's search engines. But the turning point came as fast as the success. Two years ago, Google changed its toolbar policy, which adversely affected the businesses of both Conduit and Perion.
The merger will turn Perion and Conduit into a much stronger company that will be able to exploit economies of scale. They will complement each other with solutions that will direct users (and money) to online content providers, and direct users to search engines. Another point: although Conduit is now bringing the mass, it seems that, on the day after, Perion's management will lead the company, which may be the great hope of its investors.
Published by Globes [online], Israel business news - www.globes-online.com - on September 16, 2013
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