Marchex Inc (MCHX) announced that it would spin off its domain and advertising name marketplace into a new company called Archeo. The company enables the buying, selling and development of digital properties and ad inventory. Although it has been slowly unloading its portfolio, it still has a healthy pipeline of domain names for sale and as a standalone company Archeo intends to expand its sales channel beyond negotiated deals which should help move inventory. Given the nature of the business, Archeo is expected to generate strong cash flow and is thus expected to pay out Marchex’s current dividend post-transaction. For a more in depth look at the business, check out this company presentation on the transaction.
After shedding Archeo, Marchex will become a pure play mobile advertising company and retain its current products Digital Call Marketplace and Marchex Call Analytics. This segment has grown rapidly as the mobile universe has exploded. Here is a company presentation exploring the new Marchex in more detail.
The company believes the transaction will benefit both companies by allowing each to:
- Enhance its ability to support customers and deliver innovative products in a rapidly-evolving and competitive industry.
- Focus on the priorities and operational opportunities that would maximize its long-term potential.
- Benefit from greater financial and operational flexibility.
- Customize its capital structure, and deploy resources in a manner consistent with the business goals that best enhance value for its respective shareholder group.
The usual logic. One interesting tidbit is that Archeo will have an entirely new management team as all of Marchex’s executive team will remain on board. The only exception is that Marchex’s Chairman and CEO Russell Horowitz will become Chairman of both companies, although he will remain CEO at Marchex. Intriguing.
Given management’s focus (and retention) and the quick segment growth, it certainly seems like the new Marchex is the prized asset. While Archeo has witnessed a decline in its business over the past year, there could be a lot of potential in monetizing its assets though. Based on its previous sales, Mr. Horowitz believes the assets transferring to Archeo could be worth over nine figures as the company has only sold off a small piece of its portfolio. That is pretty serious change for domain names. To back it up a bit, Marchex released a list of its top 500 domain sale prices and 14 sold for more than $200K, with even more going for prices between $100-200K. $700K for Norwegian.com? 300K for Blockparty.com? Seriously? Makes me reconsider my career choice.
The spin is expected to be completed next year and it will be important to check out the Form 10 when it is released for financial information and MD&A as there could be opportunities in both the parent and the spin. We will keep you updated as more information is released.
Disclosure: Author holds no position in any stock mentioned.