Here is a piece I wrote for the DMConfidential weighing in on the rumored but failed aQuantive / Valueclick merger.
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Two weeks ago, when the announcement of a merger between acquisition happy Think Partnership and iLeadMedia hit the wires, talks between two much larger companies considering a merger were breaking down. The potential merger would have combined two multi-billon dollar market cap companies, but in a parallel to the July 2005 story of Microsoft almost buying behavioral ad company Claria, this potential deal seems do-able but not a clear winner.
Valueclick Media and aQuantive, the two companies rumored to have been in talks both have market caps hovering around $1.8 billion and are trading within 10% of their 52 week highs. By online advertising standards, the two companies seem almost ancient. Each began during the dotcom boom and survived the bursting of the bubble to become one of the few billion dollar Internet advertising companies. Organic growth, though, does not describe these firms. They grew the old fashioned way, by buying other companies for good prices. In this week’s Digital Thoughts we look at whether a merger of the two would have made sense, we must look at their pieces. What we’ll see is that one grew in an organized unified story fashion, whereas the other has simply swallowed up firms, like the Japanese did U.S. real estate in the 1980’s.
Combined Valueclick and aQuantive have made almost 20 acquisitions over the past six years. While aQuantive has done a more than respectable job of buying others, Valueclick takes the crown in a tête-à-tête of acquisitiveness. Valueclick equipped itself well for purchases after a fortuitously timed IPO in 2000. Like any fiscally responsible firm, they made many of their purchases in stock including 2001’s Mediaplex and Adware for $49 million and 2002’s BeFree for $128.5 million. Before those, however, they bought four companies in 2000 post-IPO for cash. Among those purchased included StraightUP!, OnResponse, ClickAgents (the founders of which run Blue Lithium), and Z Media.
In 2003, Valueclick added Commission Junction, Search 123 and Hi-Speed Media, with Price Runner following in 2004. In 2005, they acquired three more companies in well-covered deals – Webclients, E-babylon (411inkjets.com among other brands), and Fastclick. A quick summary of their unites includes competencies and/or units in adserving, email, advertiser tools, CPM display network, co-registration, inkjets, PPC, incentive marketing, and affiliate marketing. Some are more active than others and several acquisitions shuttered after the purchase. Given the sheer volume, chances are I missed at least one, but just among those listed we have Valueclick buying 12 companies whose aggregate sale prices top $500 million.
As someone who tends to take pride in knowing different businesses and their models, it occurred to me during Ad:Tech NYC 2005 just how little I really knew of aQuantive’s. That makes a run through of their purchases tougher, but in some ways helps explain why upon reading that aQuantive and Valueclick might have merged, it didn’t make sense. I know Valueclick because they make most of their money in areas I know pretty well –ad networks and direct response (including email, co-reg, and incentive promotion). aQuantive on the other hand has very little to do with any of those sectors. Their biggest unit remains their agency business, which served as the foundation for the company when it was known as Avenue A prior to the 2003 name change.
Most won’t remember Avenue A’s purchase of iballs in 1999, but most did hear of the $160 million they paid for SBI.Razorfish, creating I believe the largest independent interactive agency. Those with a good memory of the dot com boom will certainly remember the Razorfish name. That company was among the leading web design consulting firms during a time when web designers were today’s Ruby on Rails programmers. Few companies had the same reputation for arrogance, for turning away clients, not to mention a higher percentage of job applicants than most Ivy League schools. It typified the dot com boom, taking 1200 employees to Vegas one year and finding a way to go from $13.5 million in sales to $170 million the very next year, even though it managed to lose $14.5 million overall. The company crashed and SBI picked them up for a mere $8.2 million in 2003.
SBI, once known as SBi, had a knack for finding and buying once high flying companies. They also purchased the other F’d Company regular, March First, a company that at one point had a valuation of $13 billon even though it lost more than $100 million each quarter during that same time period. In 2002 the company bought one-time high flier Lante for $41 mllion (a company that at least began in the first tech boom, 1984) and former internet consulting firm Scient for a mere $4.9 million. It all seemed to pay off though in the end.
History aside for a moment, the sale of SBI Razorfish made sense for aQuantive. It bolstered their design talent, tech talent, and most importantly their client list. Razorfish also fit in nicely with another ad agency the company bought in 2002, i-Frontier. More importantly, the roll-up of agencies fits in well with the technology unit of aQuantive – Atlas, an ad serving platform. The company further bolstered its technology solutions with its purchase of GoToast in December 2003. This helped aQuantive became the first of the major ad serving firms to have a parallel offering for search marketers. Now instead of being just a design firm, they could offer their clients a full suite of integrated solutions to track their buys and spend effectively.
The only connection aQuantive has to the performance marketing world is its DrivePM network that launched officially in 2004. Buying inventory across sites and reselling it to advertisers, adding value via targeting, seemed like an attractive area for growth in 2004, and the unit reached stand-alone profitability that same year. Not knowing much about DrivePM – its scale, success, and/or reputation in the marketplace, it’s hard to aQuantify its success since then, or the value it brings to the heavy brand and technology focus of the companys’ other divisions.
With aQuantive we see an integrated and coherent story, whereas with Valueclick we see a group that has managed to buy well and continue to eek out solid earnings and growth in competitive markets. Putting aQuantive and Valueclick together, though, just doesn’t seem to add-up. The Motley Fool points out what someone in the office did, that mergers of equals tends to pose big challenges. But, are they really equal? In my limited view, the only winner in the deal would be Valueclick. They stand to benefit a lot more from the relationships, skillsets, and technology at aQuantive than vice versa. What they offer in return are many clients and units that don’t mesh with aQuantive’s culture and process. Valueclick could make a good user of aQuantive products, but I’m not sure that warrants a merger.
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