WebMD has found a remedy for its volatile business: A $2.8-billion sale to El Segundo online media company Internet Brands.
The Internet’s leading destination for information about rashes, coughs and other ailments has gone through mergers and sales multiple times since its founding in the late 1990s. But investors made a fresh case for a deal earlier this year, contending that being at the cross-section of healthcare and the Internet should be more valuable than what traders were paying for WebMD shares on the stock market.
Internet Brands, owned by the private equity firm KKR, affirmed that view Monday in announcing the proposed acquisition. It would take WebMD private for $66.50 a share, or about a 20% premium to the New York company’s Friday close of $55.19.
Internet Brands Chief Executive Bob Brisco said in a statement that combining his company’s websites with WebMD’s would “catalyze” growth. The companies declined to make Brisco, a former Los Angeles Times executive, available for an interview.
WebMD generated about $705 million in revenue last year, about 80% of which came from selling advertising inside its websites and magazine. The rest came from selling subscriptions for wellness education programs to insurers and employers. Profit reached $91 million last year.
But investors have held back amid concerns about weakened ad sales growth, increased competition from firms such as Google and uncertainty about planned expansions into additional services for doctors and consumers.
WebMD has considered reducing its reliance on drug ads — spending on which can fall sharply depending on regulatory issues — by perhaps collecting a fee to connect users to medical testing labs, appointment booking tools and telemedicine apps.
Most users, after all, are entering the site thinking they may be sick or hurt. Linking people to accredited services could reduce criticism of WebMD for fostering fear among patients and acting as a shill for the pharmaceutical industry.
Internet Brands’ websites such as Dentalfind.com and Plasticsurgeons.com could tie into such goals. The company also runs message boards and online guides about healthcare and prescription drugs.
On the doctor side, WebMD’s Medscape portal for industry news could pair with Internet Brands’ marketing and website-building services. About 60% of WebMD’s ad revenue comes from Medscape, which the company says is visited by “a substantial majority” of doctors in the U.S. at least once a year.
What the acquisition would mean for WebMD’s experiments with new technology is unclear. The company has tested virtual reality apps for training doctors and is developing bots to answer user questions on Amazon Echo speakers and Facebook Messenger.
Financial analysts said they were pleased to see a high price materialize. WebMD shares have danced around $60 a few times, but they haven’t been able to maintain steady price growth since the company’s 2005 initial public offering.
“We view the acquisition news as validation of our longstanding positive thesis of WebMD’s strategic positioning, with unrivaled reach to consumers and physicians serving as an ever-important (and perhaps underutilized) platform amidst ongoing trends toward healthcare consumerism,” wrote Nicholas Jansen of Raymond James, which markets WebMD shares.
Internet Brands is paying more for WebMD than the $1.1 billion KKR paid in 2014 for the El Segundo firm. Singapore’s state-owned Temasek Holdings owns a piece of Internet Brands, too.
Last year, Internet Brands picked up Fodor’s Travel from book publisher Penguin Random House to add to a vast portfolio that includes Carsdirect.com, Lawyers.com and Weddingbee.com.
WebMD attracts about 72 million visitors a month, making it the 36th-most-popular online destination in the U.S., behind properties such as BuzzFeed and Netflix in the rankings, according to research firm ComScore.
How much user overlap there is between Internet Brands sites and WebMD wasn’t disclosed. But every added WebMD visitor would give Internet Brands a bigger chunk of the about $20 billion in annual online ad spending left after Google and Facebook get their cut.
The acquisition is expected to close during this year’s fourth quarter, WebMD said.