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Online health information companies Waterfront Media Inc. and Revolution Health Group LLC have formed a merger agreement in an effort to unseat WebMD Health Corp. as the dominant force in the online health arena.

The announcement of the deal puts to rest rumors of talks between the companies, which the Washington Post reported early last month. Waterfront has been in talks on and off with Revolution Health for at least a year, Waterfront co-founder and Chief Executive Ben Wolin said, with the talks leading up to this deal becoming more serious this summer.

"Both Revolution and Waterfront have the same ambition, which is to be number one in the category," Wolin said. "That's why this deal got done."

All of Revolution Health's sites will continue to exist under Watefront's umbrella. Wolin will be the CEO of the combined company. Revolution Health Chairman and Chief Executive Steve Case, previously co-founder of America Online, will join its board, with plans to appoint another member of Revolution Health.

The definitive merger agreement was an undisclosed stock deal, with Revolution Health becoming a "significant shareholder" in Waterfront, Wolin said. At the same time, Waterfront has raised $20 million in funding through its existing investor syndicate.

Waterfront previously raised more than $37 million since it was founded in 2003, according to VentureWire records, through investors including BEV Capital, Foundation Capital, NeoCarta Ventures, Rho Capital Partners, Scale Venture Partners, Star Ventures, Time Warner Investments and Village Ventures.

Brooklyn, N.Y.-based Waterfront operates various online Web health properties, most notably its general health information site, Everyday Health. The company's properties also include specialized sites devoted to the Sonoma and Zone diets, the What to Expect When You're Expecting brand, and fitness with Jillian Michaels and Denise Austin, among others.

Washington-based Revolution Health, which launched in 2007, provides online health information including its flagship name Web site, chronic illness site Health Talk, and hospital patient communication site CarePages.

Waterfront, through its Everyday Health brand, and Revolution Health ranked number two and three respectively in ratings for the online health market in August, the latest month for which data is available, according to comScore. Everyday Health had a total of 14.4 million unique visitors, while Revolution Health had 12 million. WebMD, the consistent leader in this market, came in with 17.7 million. With the merger, the combined company is projected to have 20 million unique users.

"If you look at WebMD's market cap today, it's a multibillion [dollar] company, and there are very few vertical franchises of that size with respect to content," said Foundation Capital General Partner Charles Moldow. "We think Waterfront has a huge opportunity ahead of it to surpass WebMD to be the second multibillion dollar Web health services company."

The new deal will give Waterfront access to new properties, including Revolution Health's "Medicine Chest" for treatment information or its doctor directory. While Waterfront had plans to develop similar applications, the merger gives the company direct access to these kinds of offerings right away, Wolin said.

"What we feel, especially in this economic environment, bigger is better," Wolin said of the deal.

For Waterfront, which is already profitable, the merger presented an opportunity to grow the company after potential plans for an initial public offering this year were called off in reaction to current market conditions.

"Waterfront on a standalone basis, if not for the financial crisis, would have been able to have an IPO Q4 of this year," said Scale Managing Director Sharon Wienbar. "Since you can't go public, it's actually a great time to grow companies because you're out of the glare of the public market."

With the deal expected to close in the middle of this month, the company will take the next two quarters to adjust to the new deal, Wienbar said, and will likely bounce back ready for an IPO in the second half of next year, while the actual timing of that stock sale would depend on market conditions. "Our plan of record is to take this thing public," Wienbar said.

For investors like Village Ventures, which has been an investor in Waterfront since the beginning, this new merger and Waterfront's leadership potential in this space mark the beginning of new sites overtaking old new-media properties, Managing General Partner Bo Peabody said.

"We think there's an opportunity in the next several years to unseat some of these older vertical media companies," Peabody said. "We want to be able to continue to prove that these companies built on a more modern platform are just better for consumers and advertisers."

Financial and legal advisors for the deal included Credit Suisse and Pillsbury Winthrop Shaw Pittman LLP for Waterfront, and Morgan Stanley and Cooley Godward Kronish LLP for Revolution Health.

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