Private equity firm Ethos Capital acquired a controlling interest in Donuts Inc. from Abry Partners. Based in Seattle, Donuts has a portfolio of hundreds of “top-level domains” such as .email, .education, .travel, .university and .shopping. The deal, valued at $925 million, closed in March 2021. No investment bankers were involved in the transaction.

Acquisition Strategy

Before founding Ethos Capital, co-CEOs Erik Brooks and Fadi Chehadé were partners at private equity shop Abry, which acquired Donuts in 2018. The duo approached their former partners at Abry and the founders of Afilias Inc., another top-level domain registry. They convinced the principals from both to merge Donuts with Afilias, after which Ethos would acquire the combined company.

The acquisition was an off-market deal, which is unique for a transaction of this size. The deal involved Ethos, a new firm that did not yet have assets under management, raising significant capital in a span of 90 days to finance both the merger of the two businesses and ultimately the acquisition of the combined company. This included debt from Blackstone and Morgan Stanley, and equity from the Baupost Group and Neuberger Berman.

Digital Assets

The digitization of business models is accelerating. Unique domain names are no longer just for websites. Everything connected to the Internet needs a unique identity – devices such as home appliances and environmental sensors are a few examples.

Ethos Capital’s acquisition of Donuts and its portfolio of top-level domains takes place at a time when the value of digital identity is on the rise, but only a finite number of domain names are available. Ethos Capital believes that the demand for new Internet top-level domains and related services will continue to increase and views the acquisition as a capital investment supporting development of the overall domain name system.

For more Deals of the Year coverage, see Mergers and Acquisitions Reveals the 2022 Middle-Market Deals of the Year.