NY-based social networking/photo sharing site Fotolog has been acquired by Hi-Media Group for a combination of cash and stock worth $90 million. France-based Hi-Media adds Fotolog to its growing portfolio, which includes an ad network and a micro-payments business. We first reported the acquisition last week, but couldn’t confirm the buyer or price. Fotolog recent reached the 10 million member mark — mostly in Europe and Latin America — meaning Hi-Media Group paid about $9 per user.
Fotolog estimates 2007 revenue of about $2.3 million. Last month, the company signed a 3-year search and advertising deal with Google that we estimate is worth a total of $75 million. Fotolog says sales have jumped 245% since January and that the company will break even within six months, resulting in positive operating income next year.
Update: CEO John Borthwick says he will stay on board, at least through the regulatory review, which he expects to take 4-6 weeks. During that period, he says, the companies will figure out who stays and who goes. “At this point, I’m staying,” he tells us from Lake Como, Italy, where he is vacationing. Borthwick is working on/investing in several other NY projects, including outside.in and Tumblr, but for now it’s “all Fotolog, all the time.” Fotolog’s HQ will remain in New York, but the team will have opportunities to do some work in Europe. More on John’s blog.
Fotolog shareholders will receive mostly stock — 77% of the deal, or about $69 million, is for Hi-Media shares, traded on the Euronext Paris exchange. According to Fotolog’s press release, its largest shareholders, BV Capital and 3i Venture Capital, have chosen to receive most of their payout in stock and “expect to participate in the development of the combined company into a major pan-European online media and services group.” A BV rep is expected to join Hi-Media’s board.
Meetup founder and CEO Scott Heiferman founded Fotolog in 2002. The company has raised $12 million in total funding. Full acquisition release after the jump.
HI-MEDIA GROUP ENTERS INTO AGREEMENT TO ACQUIRE FOTOLOG, CREATING ONE OF EUROPE’S LARGEST PUBLICLY-TRADED “PURE-PLAY” INTERNET COMPANIES
Would Combine One of the World’s Largest Global Social Networks and a Leading Online Publisher with Hi-Media’s Extensive Ad Network
Compelling Strategic Fit Would Position Hi-Media Group
as a Major Global Online Media Player
(August 25, 2007; New York, New York) — Hi-Media Group announced today that it has entered into an agreement to acquire Fotolog, Inc. for a combination of cash and stock valued at approximately $90 million, net of transaction expenses, positioning Hi-Media as a major global online media player by bringing together Hi-Media’s extensive ad network and micro-payments business with Fotolog’s rapidly-growing and highly-engaged audience of over 10 million member accounts.
Cyril Zimmermann, CEO of Hi-Media, stated: “Hi-Media was attracted by Fotolog, which has only just begun converting its strong audience growth into revenues. We think that social networks are one of the pillars of what the Internet is and will be important in the years ahead, especially when underpinned by simple mechanisms. We are also convinced that Hi-Media can benefit substantially from Fotolog’s efforts to generate maximum revenues from its audience thanks to the advertising and micro-payment services that Hi-Media has developed over the past decade. In addition, we believe that the expertise and experience of the Fotolog teams who are joining us will allow us to reinforce and accelerate the development of our publishing division.”
Launched in May 2002, New York-based Fotolog is a leading social network (HYPERLINK www.fotolog.com www.fotolog.com) that provides a platform for members to share experiences and connect with others across the globe through daily photo postings, or “photologs.” Fotolog has experienced strong growth this year, doubling the number of its member accounts to more than 10 million, reaching 15 million unique monthly visitors and logging more than 3.3 billion monthly page views. Fotolog now ranks 20th on the Alexa list of the world’s most-trafficked websites.
Fotolog has also been successful in extending its strong market position in Latin America into Europe, where, according to Comscore, it now has nearly 4 million unique monthly visitors.
Fotolog’s fastest-growing markets include Italy, Portugal and Spain. In Spain, Fotolog has more than 2.2 million unique monthly visitors and has experienced average growth in the number of such visitors of 20% per month since January 2007, increasing the number of members by 199% in the same period (source: Comscore).
Revenue in these markets is anticipated to be facilitated by the recent launches of:
Sponsored links: a new, improved partnership contract was signed with Google;
Banners: after tests carried out with a number of the site’s partners, Fotolog entrusted the advertising function of the sites to Hi-Media in three countries; and
The sale of premium services using micro-payment solutions.
Hi-Media expects these advertising contracts to increase Fotolog’s revenues significantly. Revenues should also be boosted by the unlocking of synergies between the two companies: co-operation in developing audiences in Western Europe, primarily France and Germany, the extension of advertising contracts in all countries where Hi-Media is already present, the introduction of new services and new micro-payment solutions.
Fotolog began to monetise its audience in 2007 and expects that revenues in fiscal year 2007 will reach $2.3 million. While Fotolog has sustained losses since January 2007, its revenue has recently increased sharply (sales have increased by approximately 245% since January 2007), and management anticipates Fotolog will reach break-even within the six months following the acquisition, resulting in a positive contribution to the operating income of Hi-Media in 2008.
John Borthwick, Fotolog Chief Executive Officer, stated, “We found the ideal partner in Hi-Media Group to build on our strong momentum and monetise our fast-growing audience. This will be one of the biggest publicly-traded Internet pure plays in Europe, bringing together Hi-Media’s leading ad network and Fotolog’s large and highly-engaged user base. Hi-Media is committed to investing in Fotolog’s compelling member experience and growing the platform we have created.”
Terms of the Transaction
The transaction is valued at approximately $90 million, net of transaction expenses. Consideration anticipated to be paid to Fotolog shareholders would consist of Hi-Media stock (approximately 77% of total consideration) and cash (approximately 23% of total consideration), giving eligible Fotolog shareholders 7,414,852 newly-issued shares of Hi-Media (anticipated to represent approximately 19% of Hi-Media’s issued and outstanding share capital upon completion of the acquisition). BV Capital and 3i Venture Capital, Fotolog’s largest shareholders, have elected to receive the majority of their consideration in the form of Hi-Media stock and expect to participate in the development of the combined company into a major pan-European online media and services group. A representative of BV Capital is expected to join the Hi-Media board of directors.
The transaction is expected to close before the end of November 2007 and is expected to be submitted for approval by Hi-Media’s shareholders at an extraordinary general meeting. UBS Investment Bank is acting as exclusive financial advisor to Fotolog, and Oddo Corporate Finance is acting as exclusive financial advisor to Hi-Media.
Acquisition Represents a Major Step Forward in Hi-Media Group’s Strategy
The acquisition of Fotolog would further advance Hi-Media’s strategy of transforming itself into an online media player, integrating proprietary content and social networking websites with its extensive ad network and micro-payments business.
As a result of the transaction, Hi-Media would become one of Europe’s leading online publishers and one of its largest publicly traded Internet “pure plays.” The company would rank among the top online publishers globally (source: Comscore), with nearly 4 billion page views per month.
Moreover, management believes that the combination of proprietary and affiliated websites will uniquely position Hi-Media to meet the needs of advertisers and merchants; to develop synergies among and monetise its content, advertising and ecommerce properties; and to increase its profitability in the short and the medium term. In particular, management believes that Hi-Media will be able to leverage Fotolog’s large and highly-engaged member base to promote or launch other websites of its publishing group more cost-efficiently.
While Fotolog would maintain its current headquarters and staff in New York, Fotolog’s technical and product teams would be coordinated and integrated with Hi-Media’s teams in France to optimise their combined skills and advance technology development across the publishing group.