Business Combinations

6 Months Ended

Jun. 30, 2011

Business Combinations

3. Business Combinations

Acquisition of Register.com LP

On July 30, 2010, the Company completed its acquisition of the partnership interests in Register.com LP. The Company believes that the acquisition further enhances the Company’s position as a leading provider of online marketing and web services to small businesses. In addition to bringing approximately 787,000 subscribers, which present substantial cross and up-sell opportunities, the acquisition of Register.com LP brought highly complementary products, sales channels and operating capabilities to the Company. Consideration for the interests in Register.com LP was approximately $135.1 million financed with a $95 million term loan, a $15 million revolving credit facility, approximately $20 million in cash and a $5 million seller note. In connection with the acquisition, the Company incurred approximately $2.9 million of acquisition costs during the year ended December 31, 2010 and recorded the expenses in the general and administrative expense line in the consolidated statement of operations, primarily reflected in the three months ended September 30, 2010. These costs include investment banking, legal and other professional services.

The Company has accounted for the acquisition of Register.com LP using the acquisition method as required in ASC 805, Business Combinations. As such, fair values have been assigned to the assets and liabilities acquired and the excess of the total purchase price over the fair value of the net assets acquired is recorded as goodwill. The Company, with the assistance of independent valuation professionals, has estimated fair value of certain intangible assets. The goodwill represents business benefits the Company anticipates realizing from optimizing resources and cross-sale opportunities. The goodwill is not expected to be deductible for tax purposes.

Purchase Price Allocation

The following table summarizes the Company’s purchase price allocation based on the fair values of the assets acquired and liabilities assumed on July 30, 2010 (in thousands): 

Tangible current assets	$	13,401
Tangible non-current assets		1,808
Prepaid registry fees		26,799
Developed technology		28,720
Customer relationships		20,570
Domain/trade names		15,890
Goodwill		110,305
Current liabilities		(14,892	)
Deferred revenue		(44,243	)
Deferred tax liability		(22,198	)
Non-current liabilities		(1,018	)
Net assets acquired	$	135,142

The developed technology and the customer relationships intangible assets are amortized over a weighted-average period of 96 months and 116 months, respectively. The domain/trade names have indefinite lives and are not amortized.

The fair value of accounts receivables acquired is $3.9 million, with the gross contractual amount being $4.0 million.

Register.com LP

Register.com LP contributed approximately $17.3 million and $33.2 million in revenue during three and six months ended June 30, 2011, respectively. This revenue excludes sales of our legacy services to the acquired customer base resulting from the integration of Register.com LP with the existing Web.com operations subsequent to the transaction closing. As such, the determination of operating income and net income of Register.com LP is not readily available nor would it be indicative of the standalone entity if presented.

Pro Forma Financial Information

The Company has prepared unaudited condensed pro forma financial information to reflect the consolidated results of operations of the combined entities as though the acquisition had occurred on January 1, 2010. The Company has made adjustments to the historical Web.com and Register.com LP financial statements that are directly attributable to the acquisition, factually supportable and expected to have a continuing impact on the combined results. This pro forma presentation does not include any impact of transaction synergies. The pro forma results are not necessarily indicative of our results of operations had we owned Register.com LP for the entire periods presented.The following summarizes unaudited pro forma total revenue and net loss (in thousands, except per share amounts):

	Three months ended			Six months ended
	June 30, 2010			June 30, 2010
Revenue	$	38,300		$	75,842
Net loss	$	(7,127	)	$	(15,782	)
Basic earnings per share:
Net loss per share	$	(0.28	)	$	(0.62	)
Diluted earnings per share:
Net loss per share	$	(0.28	)	$	(0.62	)
Basic weighted-average common shares outstanding		25,457			25,433
Diluted weighted-average common shares outstanding		25,457			25,433