As if Google was not already powerful enough in online advertising, the company now wants to splash out $3.1bn in cash to acquire DoubleClick, the great granddaddy of the banner ad industry.
The asking price, widely believed to have been pushed up by competing bids from Microsoft, gives over a 200% return to the financiers who took DoubleClick private in a $1.1bn deal two years ago.
DoubleClick’s financial position is not a matter of public record, and executives from both firms would not reveal this information, so it’s difficult to tell just how much Google overpaid.
The deal, if it is approved by US antitrust watchdogs, would give Google an instant strong position in the display ad business, a worthy complement to its leadership in search advertising.
For advertisers, a great many of which currently use both Google and DoubleClick advertising services, Google is promising integration between the two platforms, to greater deal of analytical tools.
Google is all about performance and measurability, Google chief executive Eric Schmidt said in a conference call following the announcement, promising unified metrics for advertisers.
The deal would give publishers more flexibility in how they sell their ad inventory – Google’s Adsense contextual paid links, or DoubleClick’s display ads. They could choose CPC or CPM ads and measure monetization through the same platform.
The combination of the two platforms would also bring Google’s contextual advertising algorithms, generally regarded as pretty good, to DoubleClick’s network, potentially improving the relevancy of displayed ads.
As for whether the deal would create a company worthy of the attention of antitrust regulators, DoubleClick chief executive David Rosenblatt said he’s not expecting the deal, which will probably not close until late in the year, will cause any problems.
As with any deal of this size, it will go through the Hart-Scott-Rodino process, he said. We believe the combination brings significant efficiencies to the market and generates significant advertiser and user value. We’re very confident will be approved.
DoubleClick was founded in 1996 and was the biggest name in online advertising during the dot-com years, when banner advertising was the main revenue generator for many companies.
Having narrowly squeaked through the dot-com bust, the firm started to struggle and was eventually taken private by Hellman-Friedman, a San Francisco private equity firm, in a $1.1bn April 2005 deal.
In its last-reported quarter, the period to March 31, 2005, DoubleClick saw a loss of $534,000 on revenue of $76.3m. If one were to assume no growth over the intervening two years, that would mean Google is paying roughly 10 times annual revenue for the company.
But DoubleClick is actually a much smaller company than the one acquired in 2005. Hellman had already sold off two of its units for over half a billion dollars since taking the firm private.
It’s pretty clear Google has paid a huge premium to keep DoubleClick out of the hands of rival Microsoft, which was first tied to the acquisition rumors at a $2bn price tag that at least one Microsoft executive scoffed at as being ridiculously high.
Don Dodge, director of business development for Microsoft’s Emerging Business Team, recently wrote of the rumored $2bn acquisition of DoubleClick by Microsoft: Strategically it could make sense but the suggested acquisition price is way out of line.
Hellman & Friedman… have divested two divisions of the company for $525m, leaving a net investment of about $600 million. And they want to sell it for $2 billion? Ya, right, he wrote on his blog. DoubleClick had about $150m in revenue last year with about $100m coming from ad placement. Presumably the rest of the revenue came from businesses that were divested. So, H&F wants 20 times revenues for DoubleClick? Maybe 20 times earnings would make sense, but 20 times revenues? You have got to be kidding.
By that math, Google just paid 30 times revenue for the DoubleClick.
Executives on the conference call announcing the news refused to disclose multiples or to speculate on how long it would take to make its money back. Google doesn’t like giving out forward guidance.