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TechTarget acquires KnowledgeStorm for $58 million

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Wedding two of the biggest players in IT lead generation, TechTarget last week acquired KnowledgeStorm, a content site for IT professionals, for about $58 million.

"It's a peanut butter-and-jelly combination," said Tolman Geffs, a managing director at media investment bank Jordan, Edmiston Group, which represented KnowledgeStorm in the transaction. "TechTarget is the largest company in what you call `push' lead generation, and KnowledgeStorm is the best in `pull'."

Geffs added that TechTarget's scale will make KnowledgeStorm "even more effective in delivering ROI needs" to buyers of IT products.

From an ad revenue perspective, KnowledgeStorm should expand TechTarget's business. According to TechTarget, the 9-year-old IT site logs about 3.5 million visits per month and has about 700 active advertisers, most of which are new to TechTarget.

"Our preliminary internal projections are that KnowledgeStorm will contribute revenue of $12 [million] to $14 million and adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] of $4.5 million to $5.5 million during the first 12 months post-integration," said Greg Strakosch, CEO of TechTarget, in a release.

"We expect the integration to be fully completed by the end of the second quarter of 2008, and further guidance will be provided when we report 2007 results in February."

Market research company Outsell estimates KnowledgeStorm's overall revenue was $13.4 million in 2006.

"They're looking at flat revenue for two years, which raises the question of whether KnowledgeStorm's growth rates have slowed," said Outsell VP-lead analyst Chuck Richard. "But TechTarget is not buying into losses. KnowledgeStorm is, in fact, generating cash based on the EBITDA numbers."

The KnowledgeStorm deal is similar in scope to TechTarget's $40 million acquisition of Bitpipe, an online distributor of white papers, webcasts and other services, in 2004.

Neither Strakosch nor other TechTarget executives could be reached for comment. A call to KnowledgeStorm was referred to TechTarget.

Last week, TechTarget reported its third-quarter revenue rose 15% to $23.3 million, from $20.3 million in the year-earlier period. Online revenue, which represented 63% of total revenue, increased 17% to $14.7 million, from $12.6 million a year earlier.

TechTarget's net income for the quarter fell 3% to $1.54 million, from $1.59 million in the year-earlier period. The decrease was primarily due to an increase in stock-based compensation expenses, which rose to $1.65 million, compared with $91,000 in the third quarter of 2006.

Richard said the latest revenue figures suggest TechTarget's growth rate is slowing from its extreme highs a few years ago—44% in 2004 and 43% in 2005. The company grew 18% in 2006; it was up 18% through the first nine months of this year, Richard said.

"It's obviously slowing down, and the KnowledgeStorm acquisition provides new sources of revenue," Richard said. "TechTarget is in effect buying new revenue."

The deal is TechTarget's third acquisition since the company went public in May. (The stock, which started off initially priced at $13, had a 52-week high of $18.69 and was hovering around $15 at press time.)

In June, TechTarget acquired TechnologyGuide.com, a portfolio of Internet content sites that provide product reviews, price comparisons and user forums for mobile technology products. At the same time, TechTarget bought Ajaxian, a Web site and conference that provides content for developers of Ajax, a Web development technology for creating interactive Web applications. Financial terms of those deals were not disclosed.

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