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ValueClick Inc., the last large, takeover target in the online advertising space on Wednesday named its US operations president Tom A. Vadnais as CEO. The move, which replaces outgoing CEO James R. Zarley with an executive with significant operational experience, underlines the extent to which ValueClick needs to consolidate its different operations before it would represent an appealing takeover play.
ValueClick’s stock has risen repeatedly in recent weeks as investors speculate that it will be the next large takeover in the space, with industry sources naming listed internet giants such as Yahoo, Time Warner unit AOL, Comcast, AT&T, or News Corp as potential acquirers.
However, ValueClick’s large size and conglomerate business model make it a more difficult acquisition prospect than its competitors, an industry source and executive have told this news service. ValueClick is the same size as aQuantive, which sold last week to Microsoft for USD 6bn, one industry executive said, noting that not many companies could afford to make an acquisition of that size. Moreover, all of Valueclick’s pieces were unlikely to suit a single strategic buyer. ValueClick’s pieces are not fully integrated, so the whole is not worth more than the different parts it acquired, the industry source said. The fact that ValueClick’s growth was through acquisitions and not organic has also made strategic players doubt it was truly as valuable, he added.
ValueClick’s stock rise has also had to overcome skepticism arising from the fact that the FTC is investigating the company’s lead generation practices.
The FTC investigation could pose an obstacle to the sale of ValueClick, a consultant said. Essentially, the FTC is examining whether ValueClick and other lead generation companies incentive based advertising practices, which involve some amount of trickery, violate either the Federal Trade Commission Act of CAN-SPAM, an industry consultant said. An example of the type of practice involved would be promising a reader a free ipod to complete a questionnaire, with fine print notifying the reader of the conditions that apply.
The investigation could pose an challenge to a Valueclick sale, as companies in the space rely on these advertising practices to generate revenues, the consultant said. Smaller, private companies are expecting the FTC investigation to spread to them, and the investigation could make it difficult for those companies to sell, as well. Market survey companies, such as Greenfield, could also be targeted by the FTC as they occasionally offer incentives in exchange for survey filling, he suggested.
ValueClick said in a 22 May 8-K filing that promotion-based lead generation, the subject of the FTC inquiry, accounted for less than 30% of its Media segment revenue for 1Q. “The FTC is investigating certain ValueClick websites which promise consumers a free gift of substantial value, and the manner in which the Company drives traffic to such websites, in particular through email,” according to the statement.
Meanwhile, the consultant and Piper Jaffray analyst Aaron Kessler downplayed in a report the possibility of ValueClick being taken out despite rampant speculation to the contrary. It was not clear as yet whether ValueClick indeed wanted to be taken out, the consultant cautioned. And while it was possible that ValueClick could be acquired, it was unlikely that a bidding war would occur as industry giants Google, Microsoft and Yahoo had just made plays in the space, Kessler noted in his report. ValueClick also has a different business model from competitors aQuantive and 24/7 Real Media, and the FTC investigation would be a concern for acquirers, he observed.
In terms of potential buyers, News Corp would benefit the most from buying an online advertising company as it owns MySpace, the online social networking site, the industry source added.
ValueClick brands include an affiliate and search marketing business called Commission Junction, an online direct response lead generation business HiSpeed Media, a technology and lead generation business called Webclients, a comparison shopping site, PriceRunner, and digital marketing technology business, Mediaplex. Mediaplex is the business that competes directly with DoubleClick and aQuantive.
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