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More consolidation? Endurance said to be up for sale

Kevin Murphy, August 27, 2018, Domain Registrars

Endurance International Group is reportedly up for sale, perhaps the next piece of consolidation or privatization in a rapidly changing domain name market.

Bloomberg, citing unnamed sources, reports today that EIG is “is considering strategic options, including a possible sale”.

EIG owns domain brands Domain.com, BigRock, BuyDomains and ResellerClub, along with a bunch of hosting properties such as HostGator.

Bloomberg’s sources stressed that no final decision has been made, and that the company could remain public.

It’s currently listed on Nasdaq where it has a market cap today of almost $1.38 billion .

The company would be far from the first to change ownership in the last couple of years.

Most recently, Web.com (Network Solutions et al) announced a plan to go private in a $2 billion deal.

A year ago, Neustar went private in a $2.9 billion deal.

In terms of industry consolidation, we’ve more recently seen KeyDrive reverse into CentralNic and MMX buy ICM Registry.

After ICANN nod, MMX buys .xxx

MMX has closed the acquisition of porn-focused ICM Registry, after receiving the all-clear from ICANN for the contract transfers.

The deal is worth roughly $41 million — $10 million cash and about $31 million in stock.

ICM runs .xxx from the 2003 gTLD application round (though it didn’t go live until 2011) and .porn, .adult and .sex from the 2012 round.

MMX, which now has 29 fully-owned TLDs and another five in partnerships, will now become roughly a quarter-owned by former ICM employees and its back-end provider, Afilias.

ICM president Stuart Lawley now owns 15% of MMX and is its largest shareholder.

CEO Toby Hall said in a statement to the markets that he has “identified a number areas of potential growth and synergy”.

The company noted that the deal increases the share of its revenue coming from the US and Europe, implicitly highlighting the reduction of its exposure to the volatile Chinese market, where .vip has been its biggest money-spinner to date.

ICM had something like 152,000 .xxx domains under management at the last count, but over 80,000 of those are reservations. It has about 92,000 names in its zone file currently.

The three 2012-round names are faring less well, with about 8,000 to 10,000 names apiece in their zones.

Somebody once jokingly told me that ICM stood for “Internet Cash Machine”, due to the perception that porn-focused names would sell like, well, porn. Just thought I’d mention that.

MMX rejected three takeover bids before buying .xxx

MMX talked to three other domain name companies about potentially selling itself before deciding instead to go on the offensive, picking up ICM Registry for about $41 million.

The company came out of a year-long strategic review on Friday with the shock news that it had agreed to buy the .xxx, .adult, .porn and .sex registry, for $10 million cash and about $31 million in stock.

CEO Toby Hall told DI today that informal talks about MMX being sold or merged via reverse takeover had gone on with numerous companies over the last 11 months, but that they only proceeded to formal negotiations in three cases.

Hall said he’d been chatting to ICM president and majority owner Stuart Lawley about a possible combination for over two years.

ICM itself talked to four potential buyers before going with MMX’s offer, according to ICM.

Lawley, who’s quitting the company, will become MMX’s largest shareholder following the deal, with about 15% of the company’s shares. Five other senior managers, as well as ICM investor and back-end provider Afilias, will also get stock.

Combined, ICM-related entities will own roughly a quarter of MMX after the deal closes, Hall said.

ICM, with its high-price domains and pre-2012 early-mover advantage, is the much more profitable company.

It had sales of $7.3 million and net income of $3.5 million in 2017, on approximately 100,000 registrations.

Compared to MMX, that’s about the same amount of profit on about half the revenue. It just reported 2017 profit of $3.8 million on revenue of $14.3 million.

There’s doesn’t seem to be much need or desire to start swinging the cost-cutting axe at ICM, in other words. Jobs appear safe.

“This isn’t a business in any way that is in need of restructuring,” Hall said.

He added that he has no plans to ditch Afilias as back-end registry provider for the four gTLDs. MMX’s default back-end for the years since it ditched its self-hosted infrastructure has been Nominet.

The deal reduces MMX’s exposure to the volatile Chinese market, where its .vip TLD has proved popular, accounting for over half of the registry’s domains under management.

It also gives MMX ownership of ICM’s potentially lucrative portfolio of reserved premium names.

There are over 9,700 of these, with a combined buy-now price of just shy of $135 million.

I asked Hall whether he had any plans to get these names sold. He laughed, said “the answer is yes”, and declined to elaborate.

ICM currently has a sales staff of three people, he said.

“It’s a small team, but their track record is exceptional,” he said.

The company’s record, I believe, is sex.xxx, which sold for $3 million. It has many six-figure sales on record. Premiums renew at standard reg fee, around $60.

With the ICM deal, MMX has recast itself after a year of uncertainty as an acquirer rather than an acquisition target.

While many observers — including yours truly — had assumed a sale or merger were on the cards, MMX has gone the other route instead.

It’s secured a $3 million line of credit from its current largest shareholder, London and Capital Asset Management Ltd, “to support future innovation and acquisition orientated activity”.

That’s not a hell of a lot of money to run around snapping up rival gTLDs, but Hall said that it showed that investors are supportive of MMX’s new strategy.

So does this mean MMX is going to start devouring failing gTLDs for peanuts? Not necessarily, but Hall wouldn’t rule anything out.

“Our long-term strategy is ultimately based around being an annuity-based business,” he said. He’s looking at companies with a “strong recurring revenue model”.

About 78% of ICM’s revenue last year came from domain renewals. The remainder was premium sales. For MMX, renewal revenue doubled to $4.8 million in 2017, but that’s still only a third of its overall revenue (though MMX is of course a less-mature business).

So while Hall refused to rule out looking at buying up “struggling” gTLDs, I get the impression he’s not particularly interested in taking risks on unproven strings.

“You can never say never to any opportunity,” he said. “If we come across and asset and for whatever reason we believe we can monetize it, it could become an acquisition target.”

The acquisition is dependent on ICANN approving the handover of registry contracts, something that doesn’t usually present a problem in this kind of M&A.

ICANN flips off governments over Whois privacy

Kevin Murphy, May 8, 2018, Domain Policy

ICANN has formally extended its middle finger to its Governmental Advisory Committee for only the third time, telling the GAC that it cannot comply with its advice on Whois privacy.

It’s triggered a clause in its bylaws used to force both parties to the table for urgent talks, first used when ICANN clashed with the GAC on approving .xxx back in 2010.

The ICANN board of directors has decided that it cannot accept nine of the 10 bulleted items of formal advice on compliance with the General Data Protection Regulation that the GAC provided after its meetings in Puerto Rico in March.

Among that advice is a direction that public Whois records should continue to contain the email address of the registrant after GDPR goes into effect May 25, and that parties with a “legitimate purpose” in Whois data should continue to get access.

Of the 10 pieces of advice, ICANN proposes kicking eight of them down the road to be dealt with at a later date.

It’s given the GAC a face-saving way to back away from these items by clarifying that they refer not to the “interim” Whois model likely to come into effect at the GDPR deadline, but to the “ultimate” model that could come into effect a year later after the ICANN community’s got its shit together.

Attempting to retcon GAC advice is not unusual when ICANN disagrees with its governments, but this time at least it’s being up-front about it.

ICANN chair Cherine Chalaby told GAC chair Manal Ismail:

Reaching a common understanding of the GAC’s advice in relation to the Interim Model (May 25) versus the Ultimate Model would greatly assist the Board’s deliberations on the GAC’s advice.

Of the remaining two items of advice, ICANN agrees with one and proposes immediate talks on the other.

One item, concerning the deployment of a Temporary Policy to enforce a uniform Whois on an emergency basis, ICANN says it can accept immediately. Indeed, the Temporary Policy route we first reported on a month ago now appears to be a done deal.

ICANN has asked the GAC for a teleconference this week to discuss the remaining item, which is:

Ensure continued access to the WHOIS, including non-public data, for users with a legitimate purpose, until the time when the interim WHOIS model is fully operational, on a mandatory basis for all contracted parties;

Basically, the GAC is trying to prevent the juicier bits of Whois from going dark for everyone, including the likes of law enforcement and trademark lawyers, two weeks from now.

The problem here is that while ICANN has tacit agreement from European data protection authorities that a tiered-access, accreditation-based model is probably a good idea, no such system currently exists and until very recently it’s not been something in which ICANN has invested a lot of focus.

A hundred or so members of the ICANN community, led by IP lawyers who won’t take no for an answer, are currently working off-the-books on an interim accreditation model that could feasibly be used, but it is still subject to substantial debate.

In any event, it would be basically impossible for any agreed-upon accreditation solution to be implemented across the industry before May 25.

So ICANN has invoked its bylaws fuck-you powers for only the third time in its history.

The first time was when the GAC opposed .xxx for reasons lost in the mists of time back in 2010. The second was in 2014 when the GAC overstepped its powers and told ICANN to ignore the rest of the community on the issue of Red Cross related domains.

The board resolved at a meeting last Thursday:

the Board has determined that it may take an action that is not consistent or may not be consistent with the GAC’s advice in the San Juan Communiqué concerning the GDPR and ICANN’s proposed Interim GDPR Compliance Model, and hereby initiates the required Board-GAC Bylaws Consultation Process required in such an event. The Board will provide written notice to the GAC to initiate the process as required by the Bylaws Consultation Process.

Chalaby asked Ismail (pdf) for a call this week. I don’t know if that call has yet taken place, but given the short notice I expect it has not.

For the record, here’s the GAC’s GDPR advice from its Puerto Rico communique (pdf).

the GAC advises the ICANN Board to instruct the ICANN Organization to:

i. Ensure that the proposed interim model maintains current WHOIS requirements to the fullest extent possible;

ii. Provide a detailed rationale for the choices made in the interim model, explaining their necessity and proportionality in relation to the legitimate purposes identified;

iii. In particular, reconsider the proposal to hide the registrant email address as this may not be proportionate in view of the significant negative impact on law enforcement, cybersecurity and rights protection;

iv. Distinguish between legal and natural persons, allowing for public access to WHOIS data of legal entities, which are not in the remit of the GDPR;

v. Ensure continued access to the WHOIS, including non-public data, for users with a legitimate purpose, until the time when the interim WHOIS model is fully operational, on a mandatory basis for all contracted parties;

vi. Ensure that limitations in terms of query volume envisaged under an accreditation program balance realistic investigatory crossreferencing needs; and

vii. Ensure confidentiality of WHOIS queries by law enforcement agencies.

b. the GAC advises the ICANN Board to instruct the ICANN Organization to:

i. Complete the interim model as swiftly as possible, taking into account the advice above. Once the model is finalized, the GAC will complement ICANN’s outreach to the Article 29 Working Party, inviting them to provide their views;

ii. Consider the use of Temporary Policies and/or Special Amendments to ICANN’s standard Registry and Registrar contracts to mandate implementation of an interim model and a temporary access mechanism; and

iii. Assist in informing other national governments not represented in the GAC of the opportunity for individual governments, if they wish to do so, to provide information to ICANN on governmental users to ensure continued access to WHOIS.

.xxx has its ICANN fees slashed and adopts URS

Kevin Murphy, February 8, 2017, Domain Registries

ICM Registry is to see its .xxx ICANN registry fees hugely reduced in contractual amendments approved by ICANN last week.

The changes also mean that .xxx will now become subject to the Uniform Rapid Suspension anti-cybersquatting mechanism, despite it being a pre-2012 gTLD.

.xxx becomes the latest pre-2012 gTLD to move to a contract more closely aligned with the standard Registry Agreement from the new gTLD program.

Under the complex new deal, its per-transaction fee could be reduced from $2 to $0.25 by mid-2018.

Its quarterly fixed fee will go up from $2,500 to $6,250.

ICM has also agreed to take on many aspects of the standard new gTLD Registry Agreement, the most controversial of which is the URS.

The domainer group the Internet Commerce Association was fiercely critical of this addition to the contract, as it has been when URS was brought to .jobs, .travel, .cat, .pro and .mobi.

ICA is largely concerned that URS will also be pushed upon Verisign’s .net, which is up for contract renewal this year, and eventually .com.