The scramble for digital advertising companies gained pace on Thursday as WPP, UK-based marketing services group, agreed to pay $637m (€472m) cash for 24/7 Real Media, a lossmaking distributor of internet advertising.

WPP said Nasdaq-listed 24/7, eyed by technology groups such as Microsoft, would increase its presence in the fast-growing internet marketing sector.

But the price reflects soaring valuations as companies jockey for position on the web.

It is about 31 times what analysts forecast the acquired group would make in earnings before interest, tax, depreciation, amortisation (ebitda) and stock option costs this year.

24/7 made a $8.6m net loss in 2006, in spite of a 43 per cent rise in revenues to $200m.

The comparison is inexact but Publicis, French rival to WPP, paid an estimated 23 times historic ebitda in December for Digitas, digital and healthcare specialist, Thomson Financial says.

Google then paid 52 times historic ebitda for DoubleClick, the market leader in 24/7’s sector, fuelling speculation 24/7 would be next on the block.

Bid interest has lifted 24/7’s share price. WPP’s $11.75 a share offer is only a small premium to 24/7’s Wednesday closing price.

A rival bid is possible. But this was not reflected in 24/7 shares trading on Thursday at about the offer price.

Sir Martin Sorrell, WPP chief executive, said the deal reflected a changing landscape in which the internet would account for an estimated 8 per cent of global advertising expenditure this year. He denied that owning a competitor to DoubleClick would cause tensions with Google, with whom WPP agencies were forecast to spend about $200m this year: “All these boundaries are breaking down.”

Although WPP is absorbing 24/7’s stock options and said the deal would be earnings-dilutive in 2007 and 2008, its shares rose 7p to 762p.

Bob Willott, industry analyst, said: “There’s a strategic premium being paid for these business, and for avoiding what might happen to traditional media-buying or advertising businesses [without] digital assets.”

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