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Secrets of the .org deal revealed, but much info remains private

Kevin Murphy, January 12, 2020, Domain Registries

ICANN has published a ream of new information about the proposed acquisition of Public Interest Registry by Ethos Capital, a deal widely criticized for what it could mean for millions of .org registrants.

The documentation was provided to ICANN by Ethos, PIR and the Internet Society, PIR’s current owner, on the understanding that certain confidential information would remain private or would be redacted.

Almost all of the juicy financial details remain unpublished, but there’s still plenty of interesting revelations among the packet’s 27 pages.

Before we dive into the details, here are the headlines:

  • The deal is being partly funded by an enormous loan.
  • Technically, Ethos isn’t the direct buyer. There are at least three corporate entities involved in the acquisition that we haven’t heard of before.
  • Ethos won’t reveal the names of the directors of PIR’s would-be owner.
  • Another former senior ICANN staffer and long-time Fadi Chehadé collaborator has been revealed as having an interest in the acquisition.

Most of the info relates to the proposed corporate ownership structure of PIR during and following the acquisition, and it’s a little bit more complex than Ethos simply signing a check to ISOC and taking the reins at PIR.

First, PIR is going to undergo what it calls a “statutory conversion” in its home state of Pennsylvania, changing its name from Public Interest Registry to Public Interest Registry LLC — essentially changing from a non-profit to a for-profit.

The company notes that this is not a change of entity — PIR will still be PIR — but is rather a change of its company type and legal name.

At the same time, a newly created non-profit fully owned by ISOC called Connected Giving Foundation will take 100% ownership of PIR LLC, before immediately selling its entire stake to the Ethos group.

But the buyer is not, directly, Ethos Capital. Instead, it’s an acquisition vehicle, created October 24 last year in Delaware, called Purpose Domains Direct, LLC. That company is owned in turn by another vehicle, formed the same day in Delaware, called Purpose Domains Holdings LLC.

Ethos controls both of these companies. It’s not unusual for acquisitions to be carried out via subsidiaries in this way.

That said, Ethos appears reluctant to reveal the names of these companies’ directors.

In its letter to ICANN asking for approval of the acquisition, apparently sent November 14 (one day after the public announcement), the names of the three Purpose Domains Direct directors are redacted. Corporation-friendly Delaware doesn’t make it easy to get at this information either.

However, in December 20 answers to a list of dozens of questions posed by ICANN about the deal, Ethos discloses that it has expanded its proposed board to five directors — the CEO of PIR (currently Jon Nevett), alongside two people selected by Ethos and two selected by “one or more minority equity holders”.

The minority owners are not named, but they could be the three entities revealed by ISOC’s CEO last November, which include funds managed by the Perot and Romney families.

The board will therefore be controlled by Ethos and PIR together, the documents state. No proposed directors other than Nevett are named and it’s not known whether the three redacted names from the November letter are still in line for seats.

The identities of individuals involved in the deal have been of keen interest since it emerged, shortly after the acquisition was announced, that former ICANN CEO Fadi Chehadé was acting as an adviser to Ethos, closely enough that he actually registered at least one domain name on Ethos’ behalf.

Ethos chief purpose officer Nora Abusitta-Ouri was a senior VP at ICANN until 2016, and CEO Erik Brooks worked for 20 years at Donuts owner Abry Partners, the private equity firm where Chehadé now works as a senior advisor.

Abry is not involved in the acquisition, the new documentation states. Neither are any current ICANN staffers or any other registries or registrars.

But it turns out that yet another former senior ICANN staffer is in fact involved.

The new documentation reveals that Allen Grogan, who worked as head of contracting for the new gTLD program and then chief of contract compliance at ICANN between 2013 and 2017, is also acting as an “advisor” on the deal.

It’s not clear whether Grogan is on the payroll of Ethos, Abry, Chehadé & Company, PIR, ISOC, or none of the above, but the smart money would surely be on him having being brought on board by Chehadé. Like so many senior ICANN officers hired during Chehadé’s tenure, the two men worked together for years at other companies.

The final nugget of new information that leaped out at me in the new docs is how the deal will be funded.

The packet reveals, I believe for the first time, that a good chunk of the $1.135 billion proposed purchase price is actually being paid for with new debt.

Ethos says that Purpose Domains Direct has taken out a total of $360 million in loans from various US banks to make up the shortfall left by its own investors.

The company said that PIR — a mature, high-margin business — will easily have the money to service this debt and, as a for-profit, pay its taxes. Repayments will be less than half of what it currently pays to ISOC every year, the documents state.

The documents were published here (pdf) on Saturday. Let me know if you spot something interesting I missed.