GSI Commerce Aims To Expand Internet Marketing Via Acquisition

Aiming to boost sales, e-commerce service provider GSI Commerce Inc. has acquired e-mail marketer e-Dialog for $157 million in cash and stock.

The deal broadens GSI's interactive marketing services and gives the company a larger presence in Europe. It also positions the company to expand beyond retail into other online markets.

"This deal significantly expands the scope of our marketing service capabilities and provides a great standa-lone solution as well as one our partners can integrate into their overall marketing strategy," said Michael Conn, GSI's chief financial officer, in a conference call Thursday.

Under the deal, e-Dialog will remain a wholly owned subsidiary of GSI, maintaining that its brand name and all employees. The company expects to benefit by providing e-mail marketing services to GSI's e-commerce clients including Bath & Body Works, Toys 'R' Us, and Major League Baseball.

"We have an opportunity to go in and work with their clients and bring our services to the table," said e-Dialog CEO John Rizzi, whose company already shares some clients with GSI including the NFL and Dick's Sporting Goods. By better targeting e-mail messages based on consumer behavior, e-Dialog expects to help GSI-powered e-commerce sites increase revenue.

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In explaining the attraction of e-mail, Conn cited research from the Direct Marketing Association finding that e-mail offered marketers the highest ROI of any online marketing channel. "The acquisition of e-Dialog fortifies our ability to compete for a larger segment of this growing business and is fully aligned with our growth strategy," he said.

Overall, JupiterResearch forecasts that spending on e-mail marketing will grow from $1.2 billion in 2007 to $2.1 billion in 2012.

Through the acquisition, GSI also plans to expand its services into other online categories such as travel and publishing where e-Dialog already does business. Moreover, it furthers GSI's international expansion efforts through the addition of e-Dialog's 60-person London office and clients such as the Royal Bank of Scotland and British Airways.

Rather than contemplate cutbacks, Rizzi said e-Dialog intends to stick with plans to add 130 employees this year, which would bring the company up to 400 total. "There's no consolidation at any level," he said. The deal culminates efforts by e-Dialog to find a buyer since last year when it hired Jefferies Broadview, the tech banking arm of Jefferies & Co., to shop the company.

After helping build up the company for the last ten years, Rizzi said e-Dialog's venture backers and board members were ready to seek a return on their investment.

Separately, GSI said Thursday it was lowering its outlook for fiscal year 2007, reducing expected revenue to $748 million to $750 million, from $737 million to $757 million. It also lowered its income from operations forecast to a range of $5.3 million to $6.3 million from $8.0 million to $11.0 million.

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