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Bargain Price Buys Scaled-Down United Online

Investment bank B. Riley Financial Inc. in Los Angeles announced earlier this month that it will acquire United Online Inc. of Woodland Hills for $170 million, but what will it get for its money? Three years ago, United Online had a portfolio on Internet brands, but the company has since liquidated its holdings. It spun off floral site FTD in 2013, followed by a series of divestitures. Last year, the company sold its social network Classmates.com to online information service Intelius Holdings Inc. in Bellevue, Wash. for $30 million. Then in April, it sold its other social network StayFriends to German advertising service company Ströer Content Group for $18.3 million as well as its loyalty program MyPoints.com to El Segundo-based marketing agency Prodege in an all-cash transaction valued at $13 million. United Online still owns two brands, Internet service providers NetZero and Juno. Both provide discount Internet access with untrendy DSL technology, but they produce consistent profits. Last year, United Online’s communications segment reported revenue of about $90 million and $29.1 million in adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization. Per the acquisition agreement, B. Riley will pay $11 a share, a mere 1.8 percent premium to the price on May 3, the day before the deal’s announcement. The finance company first offered to buy United Online in November for $12.50 a share or $185 million. At that time, the investment firm owned approximately 7.9 percent of the Internet service provider’s outstanding shares. Now six months later, United Online has accepted a deal at $1.50 less per share. “The acquisition of United Online is consistent with our long-term strategy of expanding and diversifying our business through opportunistic acquisitions,” Chief Executive Bryant Riley said in a statement. “We believe this acquisition presents our shareholders with a compelling risk-adjusted financial return that capitalizes on United Online’s predictable cash flow.” The acquisition is expected to close in the third quarter. United Online declined to comment on the deal. On the same day the acquisition was announced, B. Riley also announced a $20 million follow-on public offering of its stock. The company anticipates active participation by its executive team and board, and has authorized up to $3 million in additional shares. Net proceeds from the offering will go toward paying United Online shareholders for the acquisition, technology and services as well as general corporate purposes and expenses, which include other acquisitions and investments in other businesses. “B. Riley’s acquisition of United Online signals financial engineering,” said David Nour, author of the business book “Return on Impact.” “Specifically, they’re looking to stabilize their cash flow in support of their $20 million follow-on public offering of common stock. Many professional service firms that acquire tech providers are looking to add intellectual capital products to their portfolio of human capital services, often aimed at improving the balance sheet. United Online (communications segment) generated $90 million in revenue and $29.1 million in EBITDA. That’s going to help B. Riley on paper.”

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