Bankers pitching InfoSpace as M&A target

Julie MacIntosh

PHILADELPHIA: Media companies scouring the thinning list of Internet takeover targets are particularly hungry for Web search providers, and analysts and bankers say it may be only a matter of time before InfoSpace Inc. is scooped up.

InfoSpace, which operates online search properties like DogPile.com and WebCrawler.com and provides mobile phone games and ringtones, consistently pops up in the pitch books of bankers looking to drum up merger deals, several sources said.

The company hasn't indicated it is for sale by hiring bankers to shop it around, the sources said, but it could become a target as everyone from media giants to newspaper companies and tech stalwarts scramble to cultivate Internet strategies and cash in on the Web advertising boom.

The majority of InfoSpace's revenue comes from its search and directory business. Its "metasearch" technology searches top engines like Google and Yahoo! and compiles the best results from each.

Its mobile phone segment revenue grew at an even faster rate than its search and directory business in the recent quarter, spurred by demand for downloaded ringtones, graphics and games.

This week InfoSpace introduced a new local search system for mobile phone users seeking links to nearby restaurants or entertainment, which the company is seeking to have major U.S. carriers incorporate into their new phones.

But while InfoSpace is a recognized name in the Web search sector and its local search efforts are promising, analysts and bankers questioned whether it could become an "also-ran" as the competition rapidly adapts and intensifies.

InfoSpace's share price dropped more than 30 percent after it said in late July that softer market trends would hurt its third-quarter revenue, and its stock has stayed depressed at or below those levels. Brokerage Piper Jaffray said the magnitude of problems facing the company was "nearly astounding," with almost every aspect of its business facing a slowdown.

Internet conglomerate IAC/InterActiveCorp. in March agreed to pay $1.85 billion for search provider Ask Jeeves Inc., and the New York Times Co. paid Primedia Inc. $410 million that month for its About.com search portal.

Ask Jeeves was valued at about 15 times its cash flow, while About.com was valued at 23 times its estimated 2005 EBITDA. One source said InfoSpace, if it were sold, could go for similar multiples, which could make it worth anywhere from $1 billion to $1.5 billion depending on which of its businesses buyers think will be viable.

A spokeswoman for Bellevue, Washington-based InfoSpace did not return a call for comment.

InfoSpace has spent years cultivating relationships with U.S. wireless carriers, and those close ties could prove lucrative.

But the company has had trouble attracting Web traffic to its sites, and analysts aren't sure there's room in the market for a pure aggregator that brings in revenue by playing various "middleman" roles.

Still, with media companies bracing for an explosion in media distribution over the Internet, the importance of Web search systems to help consumers find what they want to watch, hear or buy is only likely to grow more strategic.

Shares of InfoSpace closed 3 percent higher on Thursday at $22.83 on Nasdaq.