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Google on Friday pulled off the biggest in a lengthening line of acquisitions as it won a bidding war with rivals Microsoft and Yahoo over DoubleClick, one of the early pioneers of online advertising.
The $3.1bn cash purchase, almost double the amount it paid in its all-stock acquisition of YouTube, will turn the search engine company overnight into one of the biggest sellers of online display advertising, a field in which it has until now been only a small player.
However, the deal represents a high price given DoubleClick’s revenues, which one person familiar with the deal put at $300m-$400m, and reflects a sharp intensification of the competition between some of the internet’s biggest companies as they jostle for leadership in the fast-growing online advertising markets.
One of the first companies to develop an automated network for delivering adverts to targeted groups of users online, New York-based DoubleClick was a star of the dotcom boom, but crashed when internet advertising went into reverse in 2001. It was eventually taken private in a $1.1bn leveraged buy-out two years ago by a private equity consortium led by Hellman & Friedman.
Recent reports suggested that the private equity firms were carrying out an informal auction of the company starting at about $2bn, and one person close to the deal described the heated bidding of recent days as “extraordinary”.
Eric Schmidt, chief executive of Google, defended the high price based on the potential to cross-sell DoubleClick’s services to Google’s existing search advertising customers. Speaking in an interview with the Financial Times, he said: “There’s no question in our mind that we’ll get this money back, and more.”
For Google, the purchase opens up a big new advertising market at a time when its core search advertising business is starting to slow, though at the cost of eating into a cash hoard that stood at $11bn at the end of last year. The company has indicated that it has also earmarked a large amount of that cash for content deals that it hopes to reach with traditional media companies to bring more video to YouTube and its other sites.
Many of the advertisers who use DoubleClick’s network to place display, or “branded”, advertising on a variety of websites also use Google’s network to distribute text-based search adverts, Mr Schmidt said.
“The integration [of search and display advertising] is what people have been asking us for for a very long time,” he added, making it possible to sell the two side-by-side.
By combining the analytical and other tools used by the two networks, Google would also make it easier for advertisers to manage and track their online campaigns, and assess the financial returns from both classes of advertising alongside each other, company executives said.
For DoubleClick’s private equity owners, meanwhile, the sale will bring a sizeable profit from a company that was still widely thought of two years ago as a victim of the dotcom bust. According to one person familiar with the deal, the sale price amounted to an eight-fold return on the equity portion of the original investment in DoubleClick, after also taking account of an earlier sale of part of the business.