"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'."
From an ad revenue perspective, KnowledgeStorm should boost TechTarget's business. KnowledgeStorm’s 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."
Strakosch was not available for further comment. A call to KnowledgeStorm was referred to TechTarget.
Market research company Outsell estimates KnowledgeStorm had overall revenue of $13.4 million last year.
"They're looking at flat revenue for two years, which raises the question of whether KnowledgeStorm's growth rates have slowed," said Chuck Richard, Outsell VP-lead analyst. "But TechTarget is not buying into losses. KnowledgeStorm is, in fact, generating cash based on the EBITDA numbers."
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.
"That's not an extraordinary amount of growth for an online company," said one industry observer, who requested anonymity. "What they're trying to do is supplement organic growth with acquisition growth."
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, like KnowledgeStorm's, is slowing from its extreme highs a few years ago—44% in 2004 and 43% in 2005. The company grew 18% in 2006, and was up by the same percentage through the first nine months of this year, Richard said.
"It's obviously slowing down, and the KnowledgeStorm acquisition provides new sources of revenue," he said. "TechTarget is in effect buying new revenue."
The deal is TechTarget's third acquisition since it went public in May. (The stock started off priced at $13, reached a 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. In the same month, TechTarget bought Ajaxian, a Web site and conference that provides content for developers using Ajax, a technology for creating interactive Web applications.
Geffs, from JEGI, said a big reason TechTarget opted for an IPO was to fuel acquisitions "and I expect them to make more."