Late last night, Waterfront Media and Revolution Health put the finishing touches on a merger that, when the dust settles, will produce a #2 health network with more than 20 million uniques. While a lot of the focus is on Steve Case’s dramatic switch from building his own massive health network to holding equity in another company, it’s a big leap towards Waterfront CEO Ben Wolin’s goal of building a network that can topple WebMD (NSDQ: WBMD) from its long-held perch at the top of the category. Wolin and I spoke today about the merger that is transforming the company he will continue to lead.
– Funding: Waterfront raised $20 million in equity investment from current investors but the merger itself was a straight equity play with Revolution becoming a “big” shareholder. Wolin said Waterfront doesn’t assume any debt as part of the deal. He said he doesn’t know where the notion came from that Waterfront was having problems raising money, mentioned here earlier, and that the company had offers of funds from current and would-be investors. The $20 million fifth round — making a total of $57 million raised — adds cash to the balance sheet and provides some flexibility as Waterfront expands. So what is Waterfront worth now? Wolin: “As a private company, that is a hard question to answer.” He says the company was on track as a standalone to make close to $70 million this year and also be profitable. He expects the combined number to be “well north of $100 million” in 2009.
– More M&A: “We see more. We’re going to build a big company and some of that’s going to happen organically and we’re going to continue to go after very attractive assets.”
More on Steve Case, challenged and WebMD, after the jump…
– Steve Case: When I mentioned that some people see this as a failure on Case’s part, Wolin replied: “I think that’s an uninformed view of what was going on. We certainly wouldn’t have done the deal if he was failing. We bought a growing company that was doing well. I just don’t think that’s an accurate viewpoint.” Case and another rep from Revolution will join the Waterfront board.
– No early exit: Today’s economic climate means a holding pattern for a lot of companies. Wolin says he doesn’t feel pressure for an exit: “All the people who invested, all the shareholders who approved the deal on both sides, they have long-term plans and believe in the category so no one is looking for us to turn around in the next two quarters and exit the company.”
– Competition: As far as Wolin’s concerned, there’s EverydayHealth and there’s WebMD. Asked about HealthCentral, he replied: “We don’t really look back. This is a two-horse race and the market leaders’ — us and WebMD — are well ahead of everybody else.” (We are already hearing from competitors downplaying the value of this deal and the expanded company’s actual status.)
– Traffic: The goal was 20-24 million uniques by the end of 2008 and “this deal allows us to get there.” As for the actual number, “you never know until the final numbers come out but we should be … between 22-23 million. … As an advertising-supported site you have to have a big audience, that’s part of what marketers are looking to purchase, but at the same time you can’t just buy uniques for the sake of buying traffic. You need to have a supportable business behind that.” Wolin says the company was growing 40 percent year-over-year for six consecutive quarters.
– Challenges: Wolin says he isn’t inheriting any problems with Revolution. “There’s obviously challenges in integrating a big company into your business but I wouldn’t say those challenges are any different because it’s Revolution or some other company.” Why didn’t Revolution work on its own? “I think they were working on their own just like we were working on our own. We both have the ambition of being #1 and this is a pretty quick way to get there.”
– WebMD: “They’ve been in the marketplace for much longer than anybody else. They are entrenched with their customers. They have a great brand. They really defined the market .. when everyone was first getting started online.” But Wolin stresses the differences: “Everyday Health Network and its portfolio of sites is very focused on healthy living while I think WebMD is very encyclopedic in nature. Times have changed a little bit. Vertical ad networks have really started to boom. Portfolios of sites have become accepted marketing vehicles for advertisers and I think what worked 10 years ago doesn’t necessarily guarantee success going forward.”
– Not recession-proof but …: Wolin says Waterfront hasn’t had to adjust projections because of the economic climate. “I don’t think anyone is immune to financial markets but we are in a great category and building a big business … So far so good, compared to other verticals like finance and retail and auto, health has remained pretty strong. You can look at our number, you can look at WebMD’s numbers.”