United Online Acquires Classmates

Discount ISP United Online has agreed to buy alumni networking site Classmates Online for $128 million in cash, aiming to diversify beyond its Internet access business. The company says Classmates has $28 million in cash on its balance sheet, making the net purchase price $100 million.

The company says the buy brings it new subscribers and lets it expand beyond the highly competitive ISP business, where its Juno, NetZero and BlueLight.com services face aggressive discounting by competitors. The deal also allows United Online to expand its offerings to advertisers. As of September 30, Classmates had 1.4 million paying subscribers, 10.4 million monthly active accounts and more than 38 million registered members.

“The addition of Classmates will give us a powerful audience of more than 16 million active accounts, providing us additional marketing opportunities and extending our advertising reach,” said Mark Goldston, chairman, CEO and president of United Online.

Classmates is a subscription-based service that lets users connect with past friends and acquaintances with whom they attended school, worked, or served in the military. Users may join and create a profile without paying, but they must become paying subscribers before they may contact other users.

During the nine months ended September 30, Classmates generated revenues of $54 million. Seventy-five percent of that was from subscription fees. It had operating income of $3.7 million, after $4.9 million of depreciation and amortization expenses.

United Online, based in Woodland Hills, Calif., expects to maintain Classmates’ offices in Renton, Wash. after the deal closes in the fourth quarter of the year. The company has 175 employees.

Besides its flagship Classmates.com site, which operates in the U.S. and Canada, the company has a Classmates International subsidiary, which runs networking sites in Sweden and in Germany.