When 24/7 Media Inc. on Oct. 30 announced its acquisition of ad-serving rival Real Media Inc. for $1.9 million, in one move it vaulted itself to the No. 2 position in the market and put itself on a better footing to survive in the shrinking industry.
The acquisition also helps Real Media, which its parent, Swiss media giant PubliGroupe, was quietly shopping around. The company reportedly had been in talks with DoubleClick about buying Real Media, but that deal fell through when DoubleClick announced its acquisition of L90's technology on Oct. 2. DoubleClick is rumored to have paid $20 million.
Now, the combined 24/7 Real Media, as the company will be called, is a solid No. 2 behind DoubleClick and can offer clients a one-stop shop for Internet marketing technology, ad serving and e-mail marketing. The combined entity will have an inhouse e-mail database of 35 million addresses.
Christopher Dixon, an analyst at UBS Warburg, said before the merger, 24/7 Media did not have the resources to effectively compete with DoubleClick. Now, the combination of 24/7 Media and Real Media changes that.
“The reality is 24/7 did not have the necessary scale,” Dixon said. “The big opportunity will continue to be in opt-in e-mail.”
Even though 24/7 Media sold its Exactis e-mail service bureau to Experian in May for $13.5 million in cash, the company is still firmly entrenched in the e-mail business. The company sees its future in list management.
Stephen Eustace, vice president of e-mail at 24/7 Media, said the company's list management business is growing.
“We can basically bring to the table any list on the marketplace,” he said. “Exactis was divested because it was a sender of e-mail. We don't see that business growing for us. We don't plan to get back into it.”
The task now is to combine both companies' technologies, including Real Media's OpenAdStream for publishers, an online advertising network, permission-based e-mail marketing and search engine optimization tool.
The combined company will be led by David Moore, 24/7 Media's CEO, who will retain that position. Tony Plesner, 24/7 Media's chief operating officer, will hold the same position in the new company.
The company's clients include AT&T, General Motors, Ford Motor Co., American Express, Weather.com and The New York Times Digital.
“This sets us up as the clear No. 2 company in this space,” said Plesner. “It'll be a business built around two distinct areas: media and technology.”
He said he anticipates more than $10 million in annual operational savings as a result of the merger. The savings will come from laying off about 15 percent of the combined staff and eliminating redundant expenses. 24/7 Real Media will have about 300 employees after the merger is complete.
The company expects to be profitable on a cash basis by the fourth quarter of 2002. Plesner said 24/7 Real Media has about $8.9 million in cash and securities.
In August, 24/7 Media reported a second quarter loss of $53.8 million, or $1.23 per share, up from $22.1 million, or 82 cents per share, a year earlier. Total revenue for the quarter was $13.4 million, down substantially from $40.6 million in the second quarter of 2000. Network revenue for the second quarter fell to $5.5 million from $29.2 million a year earlier, e-mail revenue fell to $1.6 million from $8.5 million, and technology revenue rose to $6.3 million from $2.9 million.
24/7 Media will report its third quarter earnings Nov. 13.
In May, it closed offices in Mexico, Brazil, Argentina, Chile and Miami, resulting in annual savings of $3 million. The company also sold its Sabela Media and Award Track units earlier this year. Those deals have helped the company reduce its operating expenses by nearly $65 million. The sale of those divisions has added more than $19 million to the company's coffers.
In Europe, both companies will retain their separate corporate identities.
PubliGroupe will provide additional financing for the combined company, as well as assist in 24/7 Media's restructuring. The company agreed to advance 24/7 Media $6 million in financing, which will be paid back in three installments, Plesner said. It also promised to provide an additional $1.5 million in financing “upon the achievement of certain earnings targets,” he said.