Microsoft jumps into online advertising with aQuantive acquisition

Microsoft today announced the acquisition of aQuantive, an online advertising and marketing company, for approximately $6 Billion in cash. Founded in 1997, aQuantive, Inc. (NASDAQ: AQNT) is primarily known for its three brand names; Atlas and DRIVEpm for advertisers and publishers, and Avenue A / Razorfish, one of the largest online ad agencies.

Atlas provides a set of advanced tools for both advertisers and publishers. The Atlas Media Console is an industry-leading toolset providing agencies and advertisers with capabilities to maximize ROI. The Atlas Publisher platform enables publishers to maximize monetization opportunities for their content. DRIVEpm provides services to publishers and advertisers that match advertiser campaigns with publisher inventory enabling all parties to maximize ROI. Avenue A | Razorfish is one of the largest interactive ad agencies in the world, providing advertisers with industry-leading digital marketing consultation, media planning and buying, and creative services that help advertisers use the online channel to build meaningful, profitable relationships with their customers. The Microsoft press release included this quote from Steve Ballmer. “The advertising industry is evolving and growing at an incredible pace, moving increasingly toward online and IP-served platforms, which dramatically increases the importance of software for this industry,” said Steve Ballmer, chief executive officer of Microsoft. “Today’s announcement represents the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet. Microsoft is intensely committed to creating a thriving advertising business and to partnering closely with all key constituencies in this industry to help maximize the digital advertising opportunity for all.” MarketWatch reports "In 2006, the company's revenue jumped more than 43% to $442.2 million, following a 95% gain the year before that. For the current year, aQuantive has forecast an increase in sales of as much as 39% to $615 million. The firm is already profitable." TechCrunch reports; aQuantive is a public company (AQNT) and had a market cap of just $2.8 billion as of yesterday. The acquisition price of $6 billion is a roughly 2x premium on yesterday’s closing price, which is a reflection of the fact that this were competing bidders (see notes below). The acquisition comes after recent big acquisitions by Google and Yahoo in this space. Google bought Doubleclick for $3.1 billion in April. Later that same month, Yahoo acquired competitor RightMedia for $680 million. Just yesterday, WPP Group acquired yet another company in this space, 24/7 Real Media, for $649 million. It is important to note that aQuantive is located in Seattle close to Microsoft's MSN and Live Services groups. This will make integration and coordination much easier. aQuantive has 2,600 employees.

Comments

[Thomas]

Don,
What do you think of the valuation Microsoft paid for Aquantive? Does your corporate development team have anyone who is competent in planning deal strategy? Clearly you guys got backed into a corner to overbid on the last remaining internet agency of size. I guess when you're spending shareholder money, it doesn't really matter though, right?

[John Ebbert]

In my opinion, this purchase is not a waste of shareholder money. It seems to me Microsoft was very smart with the acquisition and will see a lot of value going forward - not the least of which is ownership of Atlas - key competitor to GoogleClick's DART. Atlas is a cornerstone of the all-important advertising/agency relationships.

[Thomas]

Any idea why trading in AQNT's shares spiked before close of trading yesterday? How well does Microsoft enforce its policies and procedures around acquisitions? How well do they ensure that other parties (lawyers, diligence teams, etc...) enforce those same policies? Should be interesting to watch this play out.

[Michael]

Top tier Internet growth companies can make about 33% profit on each dollar of sales. So, triple the acquisition price to get to the revenues needed to break even.

[Juha]

Correct me if I'm wrong, but isn't aQuantive US-only?

Shouldn't Microsoft be looking at online advertising on a global scale, like Google already does, and not just the US?

[Steve Morsa]

Don--would be great to hear YOUR insight/take on this deal; assuming you're able to state it in a public forum like this.

You've said in the past that you--and the Micro leadership--felt that the best course moving forward would be to pick up key assets/ companies/ innovations no more costly than 10-50 mill or so per...that there was little point in paying big bucks for "stuff" your own folks could create/build yourselves...

You've already got great existing advertiser relationships...and a-Q's tech is; frankly; nothing you couldn't replicate, if not make even better w/in a year or so...or buy for 50-100 mill from any one of the many other "secret sauce" ad-serving companies out there.

How does 6 billion pencil out; even in the best of scenarios?

Is there something that most everyone who's scratching their heads over this--me included--missing here?

[Mehnaz]

Online Advertising is in full swing. I think its going to go great for Microsoft. I have been reading about other acquisitions by Google, Yahoo and Adify. Read more about Online Advertising: More Acquisitions in http://sramanamitra.com/blog/1006