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DOUBLECLICK ACQUIRED FOR $1.1 BILLION

Private Equity Firm Hellman & Friedman Does Cash Deal

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SAN FRANCISCO (AdAge.com) -- Ad-serving company DoubleClick has agreed to be acquired for $1.1 billion in cash by San Francisco-based private equity firm Hellman & Friedman, according to a statement issued this morning.
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JMI, a San Diego-based venture capital firm that specializes in software and technology business, has also joined Hellman & Friedman in the deal, which has been approved by DoubleClick's board but is still subject to shareholder approval.

Ad-serving pioneer
DoubleClick has a history that stretches back to the earliest days of World Wide Web; it was among a handful of companies to pioneer the concept of online ad-serving networks, which, until the rise of search-engine advertising, dominated the Internet ad business.

"DoubleClick has two outstanding franchises with strong presence in their marketplaces," said Philip Hammarskjold, managing director of Hellman & Friedman. He emphasized that the New York-headquartered ad-serving company has "powerful brand names, experienced management and skilled employees," and that the investment companies saw growth potential in both areas in which DoubleClick is involved.

DoubleClick's two businesses
The company is now divided between an Internet ad-management business and a data-solutions business for direct marketers, which includes a direct-marketing database of catalog buyers' information called Abacus. Analysts and industry insiders last week noted there is very little synergy between the two operations.

One analyst, Troy Mastin of William Blair & Co., said it was likely the company might be broken in two after its acquisition.

DoubleClick posted a quarterly loss of $917,000 compared with a profit of $7.7 million a year ago. The company attributed the loss to the costs of exploring a sale.

The more valuable operation
Like other ad-serving companies that were hit hard by the 2000 dot-com bust that killed large portions of online ad spending for several years, DoubleClick struggled even as it built out a completely different sort of business with its Abacus product. Analysts believe that the little-known data division is more valuable than the ad-serving function for which the company is best known.

The database contains demographic and transactional information on 90 million households, essentially every household in the U.S., gleaned from the house files of most mail-order catalog companies in the country. Catalogs are typically mailed out to all these households in waves each season.

Although Abacus was thought to be the most valuable, Mr. Mastin pointed out that the "Abacus business didn't grow this quarter." Quarterly revenue was $20.7 million compared with $20.4 million in the year-ago period. "It's had some problems the last quarters," he added.

Competition for customer acquisition
"I think carpet bombing catalogs for customer acquisition purposes is getting less effective," he said by way of explanation -- and the irony is that it's less effective because of competition on the Internet. With 250,000 advertisers at Google vs. 1,800 catalogers in the U.S., "there's a lot of competition out there," Mr. Mastin said. "I would guess that people are tuning out the catalogs as an acquisition tool."

Nevertheless, Mr. Mastin said the $1.1 billion price tag for the company was not too high. "The valuation didn't surprise me," he said.

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