FindWhat to Buy Desktop Software Firm for $33.5M

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Search company FindWhat.com said Monday that it agreed to buy New York desktop software maker Comet Systems for $33.5 million in cash and stock.


FindWhat, Fort Myers, FL, hopes the acquisition expands the reach of its search listings through a new avenue: desktop software programs.


Comet Systems has an Internet browser search toolbar that returns algorithmic search results from Yahoo's Inktomi and paid listings from Yahoo's Overture unit. Comet Systems offers the Comet Search toolbar as an optional download when users download one of its desktop software products, including travel information and dictionary software, a pop-up ad blocker and screensavers.


A Comet Systems representative said the toolbar is on about 10 million computers worldwide.


Comet Systems gained access to many desktops thanks to its Comet Cursor, introduced in 1998, which lets users choose from 4,000 cursor designs and characters ranging from the U.S. flag to Garfield. In 2001, it released its desktop search engine and centered its business model on the growing market for paid listings.


"We're looking to broaden our service to help our customers get, find and keep new customers," said Dave Rae, FindWhat's chief strategy officer. "We think being on the desktop will help us do a much better job of knowing what users are looking for and matching them to our advertisers."


Rae said FindWhat was comfortable with Comet Systems' disclosure policy that the toolbar comes with the free applications.


"We have to earn our space on the desktop," he said.


Jamie Rosen, chief executive of Comet Systems, said toolbars and desktop applications offer a dynamic connection to consumers.


"Companies realize there's another way to reach consumers beyond Web sites," he said.


Search engines have moved aggressively to take search off the Web page. Google, Yahoo and MSN all offer browser toolbars, as do smaller search companies like Ask Jeeves and Dogpile. Rich media company Viewpoint announced a deal with Yahoo recently to release its own graphical search toolbar and expects to have 15 million installed by the end of the year.


Google has moved to weave its search even closer to the Internet user through a search application that resides on the Windows taskbar, letting users search even when their browser is closed. Likewise, Microsoft plans to embed search in its new operating system, due for release in 2006.


Through Comet Search, Rae said, FindWhat for the first time will control the entire search experience, since its search distribution has been confined to listings displayed on second- and third-tier search engines.


"The closer you get to the user, the better data you get," he said.


The deal follows FindWhat's acquisition of European counterpart Espotting for $170 million. The merger was in limbo for eight months after FindWhat discovered Espotting's finances were less robust than originally thought.


Under the Comet Systems deal, FindWhat would pay $8.5 million in cash and $15 million in stock. Plus, depending on Comet Systems' financial performance as a FindWhat unit in 2004 and 2005, FindWhat will pay another $10 million in cash. FindWhat's board approved the deal; Comet Systems' board still must vote. FindWhat said it expects the acquisition to close in 60 days.


Like Espotting, Comet Systems is expected to add slightly to FindWhat's earnings. Both new acquisitions, however, lost money last year: Espotting lost $7 million in the last nine months of 2003, and Comet Systems lost $300,000 for the full year. Rae said the two acquisitions worked well together, as a sizable chunk of Comet Search's distribution is international.


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