$800 Million Company Formed by Perion-Conduit Merger

Reverse merger sees Conduit taking 79% stake in Perion, allowing venture capital backers to cash out some of their holdings in a publicly traded company.

Global digital media solutions provider Perion Network announced on Monday that it would merge with the browser toolbar division of Conduit, which will be spun-off from the mother company.

Conduit will hold 79% of the new company, 19% will go to Perion’s original stockholders and 2% of the shares will be allotted to the employees of both companies. The merger will close in early January, following a November vote by Perion's shareholders. The post-merger company will have a market value of between $800 million and $900 million.

Perion focuses on developing media and consumer participation apps for clients around the globe. It chalked up record revenues of $27.6 million in the first quarter this year, a 145% jump over its revenue in the same quarter last year. The company, founded in 2000 by cousins Yaron and Ofer Adler, is considered one of the older Internet companies in Israel. Its business model is based on profit-sharing with search engines to which it drives traffic, a similar model to that of Conduit 's browser toolbars.

Perion, which trades on both the NASDAQ and Tel Aviv Stock Exchange, had a market value of nearly $162 million before the merger was announced. Between them, the companies had combined revenues of $397 million over the 12-month period ending June this year.

Conduit's value, based on its last round of raising capital from investors in 2012, was $1.5 billion. Two months ago, the company announced it was dividing into two businesses to maximize the value of its operations. Its browser toolbar division, called Client Connect, which has 200 employees, is the one merging with Perion. Several of the company’s early start-up phase activities – ones that have yet to yield significant revenue to the company - will, however, continue to operate under the name Conduit. These include the app-making platform Conduit Mobile, the QuickLaunch app for producing personalized content for mobile phones, consumer website engagement platform Wibiya and its U browser. Conduit has 450 employees working on these products.

While Conduit's management spoke out against the possibility of a public offering for the company in the past, the newly announced deal would in effect be a reverse merger, making the company's Client Connect division publicly traded. This will allow Conduit's venture capital backers to realize some of the value of their investments by selling their shares in the merged company.

Even before the merger deal, Conduit generated a large cash flow and issued dividends worth hundreds of millions of shekels in the past to shareholders and employees. The largest shareholders in Conduit are Benchmark Capital and investment fund J.P. Morgan Asset Management. The latter acquired 7% of the Conduit for $100 million in 2012.

Reuters contributed to this report.

Guy Ravitz