RealTime IT News

MindArrow in Merger Deal with Category 5

Rich media e-mail firm MindArrow Systems is aiming to merge with interactive rollup Category 5 Technologies, in a deal that will integrate the two firms' offerings.

Category 5, based in Salt Lake City, does business through a number of subsidiaries that principally service out-of-home or online startups. In May, the firm entered the rich media e-mail space with the acquisition of CaptureQuest, which put it into competition with MindArrow.

Through the merger, outstanding shares of Category 5 will be converted into the right to receive newly issued shares of Huntington Beach, Calif.-based MindArrow. After the transaction, Category 5 shareholders will receive 55 percent of the total company.

Category 5's investors also will receive warrants equal to about 5 percent of the company, which will be exercisable if two of its units, ePenzio and Bring It Home, hit certain financial targets.

The merger is subject to approval from both firm's shareholders. Once it's complete, MindArrow Chief Executive Robert Webber will continue as head of the merged company, which is expected to be headquartered in California.

The company's board of directors will include MindArrow's Merv Adelson, Bruce Maggin, Joseph Matlock, Joel Schoenfeld and Bruce Stein, and Category 5's Paul Anderson and Tyler Thompson.

Other terms of the deal were not disclosed.

It's unclear how MindArrow's offerings will be integrated into the company's suite of products, though executives said MindArrow's platform would likely be combined in some form with that of Provo, Utah-based CaptureQuest.

MindArrow also brings to the table relationships with several high-profile clients, having serviced Hewlett-Packard , Johnson & Johnson and Mazda. CaptureQuest, meanwhile, has done work for Iomega , Toyota and Novell .

"The addition of MindArrow's large enterprise customers fits very nicely with our e-mail marketing business ... and the combined suite of software will give our [small- and medium-sized enterprise] channel customers the applications they need to quickly and easily build, manage and promote their online storefronts," said Category 5 Chairman Paul Anderson.

The move also brings additional financial stability to MindArrow, which for months has struggled as online advertising spending dwindled. Category 5 posted about $467,000 in earnings during its first quarter, or about $0.03 per diluted share, on $7.9 million in revenues. It also has about $394,000 in cash.

MindArrow, on the other hand, posted net losses of $2.9 million during its second quarter, or about $2.16 per share, on about $900,000 in revenue. The company had been near the end of its cash reserves last month when a Los Angeles venture capital firm provided up to $3 million in financing.

Now, it seems MindArrow has both more breathing room and a new partner with which to engage in cross-selling.

While MindArrow previously focused on wooing larger clients, its association with Category 5 also is likely to increase its work for small businesses. ePenzio provides Web hosting and billing services for out-of-home and online businesses, while Bring It Home conducts seminars on how to use the Internet to expand or start a small business.

MindArrow and Category 5 "fit together very well strategically and operationally," Webber said. "The merger significantly expands our client base and provides us with the opportunity and resources to market a host of complementary applications and services through new channels."

In addition to expanding MindArrow's sales effort, the merger also continues Category 5's efforts to revamp itself. The company began as Network Investor Communications, an investor relations firm that ultimately ceased doing business in late 1999. In mid-2001, the company relaunched and began a string of acquisitions that included ePenzio, Transaxis, Exposure International, Flash Alley, Bottomline Online and CaptureQuest in May.

Now, the company positions itself, through its various subsidiaries, as an all-in-one shop for setting up an e-commerce storefront, business consulting, Web hosting, design and marketing.