Experian Group Limited Acquisition of Hitwise

19 April 2007

Experian Group Limited Acquisition of Hitwise

Experian, the global information solutions company, announces that it has acquired Hitwise, a leading Internet marketing intelligence company, which helps clients monitor the performance of their websites and target their online advertising spend more effectively. The purchase price is approximately USD$240m and will be funded from Experian’s existing cash resources. The transaction is subject to regulatory approval.

Don Robert, Chief Executive Officer of Experian, commented:

“We have been successfully repositioning our Marketing Solutions business to meet our clients’ needs as they continue to switch more of their advertising spend online. Hitwise, which is a rapidly growing, successful business, brings new, unique data to Experian and complements the existing data, tools and expertise that we already offer to clients in other areas such as research services and email distribution.”

Andrew Walsh, Chief Executive Officer of Hitwise, said:

“Over the last 10 years, Hitwise has developed a truly unique digital intelligence service that helps inform the online marketing strategies of 1,200 clients around the world every day. We are excited to become part of Experian, having worked with them for over four years. We will now be able to accelerate Hitwise’s growth and profitability through access to Experian’s wider pool of data, tools and clients, while more quickly expanding our global footprint.”

Description of Hitwise

Founded in 1998, Hitwise collects and aggregates information from Internet Service Providers (ISPs) on how over 25 million consumers use and search the Internet in the US, UK, Australia and other countries in Asia Pacific. Using proprietary technology, Hitwise reports on nearly a million websites each day and sells this information to companies who market their services online. The data allows companies to benchmark their websites against competitors in terms of visitor market share, visitor profiles and time spent on sites. It also helps companies to determine which are the best websites on which to advertise, which search engines drive traffic to their sites and which key words are most effective.
To safeguard consumer privacy, the data excludes personally identifiable information and is aggregated into socio-demographic marketing segments. Hitwise owns this data once it has been processed.

Hitwise has over 1,200 clients across numerous sectors including financial services, media, travel and retail. Hitwise’s clients include HSBC, AXA, Google, eBay, CBS News, ask.com, IKEA, MTV and Qantas. The top ten clients only account for 5% of sales. 43% of sales are generated in the US, 36% in the UK and 21% from Australia and Asia Pacific. Hitwise benefits from clear barriers to entry, reflecting the scale of its operations, the quality of its data and its long term ISP relationships.

Rationale for acquisition

The acquisition of Hitwise continues the repositioning of Experian’s Marketing Solutions activities. Companies are increasingly shifting from mass marketing through established media, such as direct mail, to more targeted marketing through many more channels, including email, Internet and mobile devices. Through its expertise in website monitoring, Hitwise extends the range of marketing services that Experian can offer its clients.

Hitwise strengthens Experian’s position in market research by bringing new, unique data to Experian on how consumers behave online, to complement our existing knowledge of how they behave offline. Hitwise’s services are also complementary to other Experian products. For example, Hitwise will leverage the sales and distribution network of CheetahMail, our email delivery and analytics company.

Hitwise operates in high growth markets. It is estimated that total US online advertising spend, for example, will grow by about 20% CAGR between 2005 and 2010 to $32bn as Internet usage by both consumers and businesses grows (source: Interactive Advertising Bureau). This growth in Internet advertising is fuelling demand from companies to target better their advertising spend (be it for search marketing, local search or banner advertising) and to measure its effectiveness. Hitwise helps companies achieve both these objectives.

Hitwise has good organic growth prospects, driven by:

• adding new clients in existing geographies - Hitwise has increased its customer base by more than 40% in the last two years;
• selling additional products to existing clients - Hitwise has a good track record;
• product innovation - Hitwise continues to develop its proprietary technology to provide marketers with new ways of analysing Internet activity; and
• geographic expansion - Hitwise has the opportunity over time to move into other parts of Western Europe and Asia.

Financial performance

Hitwise has an attractive financial model. Revenue is highly predictable as clients generally pay annual licence fees in advance and customer retention rates are high. Cost growth is also relatively low once critical mass has been reached in a market, as Hitwise pays for the data from the ISPs once and then resells it many times.

This model underpins Hitwise’s expected future growth. In the year to 31 March 2007, Hitwise is expected to generate sales of approximately $40m (a year-on-year increase of about 50%) and a small profit. Given that the visibility of future revenue is high, Experian expects Hitwise to grow sales by more than 40% in the year to 31 March 2008 and generate EBIT (before amortisation of acquisition intangibles) of $12-15m. The acquisition is expected to be neutral to Benchmark earnings* in the year to March 2008 and generate a post-tax double-digit return in the third full financial year on a fully-taxed basis.

Hitwise, which has been acquired from its original backers and management, will form part of Experian Marketing Solutions. Hitwise has over 200 employees based mainly in Melbourne, New York and London. The acquisition is expected to close in May 2007.

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