After years of making many small acquisitions, J2 Global Communications Inc. last week made its biggest buy yet: its main competitor. Now the company can claim the top spot in its market of Internet fax services.
Hollywood-based J2 announced Dec. 6 that it had acquired Protus IP Solutions Inc. of Ottawa, Canada. The $213 million deal gives the company access to 500,000 subscribers, expanding its hold on the fax and e-voicemail markets.
With the deal, J2 will command 44 percent of the faxing market, and most of its remaining competitors are tiny.
“This was a big acquisition for them,” said Peter Davidson, president of Davidson Consulting in Sturgis, Mich., which does market research for the fax and communication industries. “It puts them totally in control of the market.”
The company provides communication services for businesses, including voicemails transcribed by voice recognition software. Its primary business, however, is helping businesses transition from traditional fax machines to online faxing.
What is online faxing? Using J2’s technology, customers can send scanned documents from their computers to fax machines, e-mail accounts or other computers via Internet phone. The company’s service, called eFax, costs $17 a month per phone number compared with higher costs, as much as several hundred dollars a month, for a landline fax.
“We take telephone numbers and connect them to the Internet,” said Hemi Zucker, the company’s chief executive. “Our largest success is with fax.”
In its 15-year history, J2 has become the market leader in providing online fax services. The 400-employee company is headquartered in a high-rise across from Grauman’s Chinese Theatre on Hollywood Boulevard.
Protus, a private company, reported $72 million in revenue last year. That compares with J2’s revenue of $246 million in the same span. The largest remaining sizable competitor is CBeyond in Atlanta, but it is smaller than Protus.
In addition to expanding J2’s fax customer base, the acquisition also gives J2 access to Protus’ Internet voicemail customers and its e-mail marketing product, Campaigner. J2 plans to integrate Protus’ fax and voicemail services and customers with its own eFax and eVoice products.
“We think it’s very important to grow the number of overall relations that J2 has,” said J2 President Scott Turicchi, who sees an opportunity for cross-selling. “Many of our customers buy a single service a la carte, and we want to begin to expose more of our services to an increasingly larger customer base.”
Purchasing power
The acquisition of Protus was J2’s eighth purchase in the last year and 31st since 2000. Before Protus, its most recent acquisitions were Miami-based Venali Inc. and Dublin, Ireland’s KeepITSafe Data Solutions Ltd., companies that both provide cloud-based online backup services for businesses.
“Acquisitions are core to our basic operational approach,” Turicchi said. “A lot of the companies in our space tend to be very small, so most of the deals are financially immaterial to us.”
That’s because J2 is sitting on a significant pile of cash. In the third quarter of this year, the company reported about $272 million in cash and investments. The company’s cash comes from the low cost of providing its telecom services – only about $2 per month – compared with the $17 subscription fee.
J2 financed its purchase of Protus with cash on hand. The company will incur $15 million in expenses from the deal in the next nine months.
Daniel Ives, an analyst at Arlington, Va.-based FBR Capital Markets who follows J2, said the acquisition was a smart move for the company.
“There was pressure for them to do a bigger acquisition that would be more of a game-changer rather than small acquisitions,” he said. “Anytime you have a mature business, you need to make moves to find further growth initiatives.”
Zucker noted that the recent acquisitions helped J2 grow despite the recession, and he doesn’t see the fax market maturing anytime soon. Instead of ditching faxes altogether, businesses are moving them from machines to the Internet. E-mails might seem to replace faxes, but faxes still make it easier to send documents on paper or in computers.
“We’re not in the business of creating fax usage, but in replacing it,” he said.
In the next four years, the market for Internet fax services is expected to grow by 11 percent for individuals and 15.5 percent for businesses, according to a study from Davidson Consulting.
In a step to make Internet faxing easier for consumers, J2 recently released an iPhone application that lets people scan documents using the phone’s camera and send them through a J2 eFax account. The company also signed a deal with Hewlett-Packard in September to install its eFax software in the computer giant’s newest machine, which scans, copies and prints files. Instead of connecting the machine to a fax line, eFax connects the device to a wireless Internet signal to send documents.
Zucker acknowledged that fax usage has decreased because of the Internet and e-mail, but he doesn’t worry as long as the need for faxing still exists.
“We don’t care how often people are using the fax, we just care that they need it once in a while,” he said.
