San Francisco buyout firm Hellman & Friedman is close to buying online advertising technology company DoubleClick Inc. for an estimated $1.2 billion, according to a report published yesterday in the New York Post.
Sources close to the negotiations are said to have leaked the news to the tabloid. The same sources told the Post that there was no guarantee that a deal would be reached because a rival bid from General Atlantic Partners and Cerberus Capital Management could upstage Hellman's.
“We have no comment on the article or the stage of our strategic review process,” Jennifer Miller, vice president of corporate communications at DoubleClick, told DM News.
The report broke on the same day DoubleClick announced a $917,000 loss for the first quarter of 2005 versus net income of $7.7 million for the year-ago period. Revenue for the recent first quarter was up to $76.3 million from $68 million in the same period a year ago.
The Post article also comes five months after DoubleClick, New York, announced plans to consider strategic alternatives, including partial or outright sale, dividends, stock buyback or breakup of its individual operating units.
Few will miss the irony in the reason cited for the first-quarter loss: the result of retention payments and professional fees associated with DoubleClick's ongoing review of its strategic options for the company's future.
A sale of DoubleClick might lead to a split of its online and offline units. The company extended itself offline with a range of purchases, including the $1 billion all-stock acquisition in 1999 of the Abacus database business. Abacus and online ad management account for more than two-thirds of DoubleClick's revenue.
Interestingly, the resurgence in online advertising has not helped DoubleClick in its ad-serving business. The Interactive Advertising Bureau estimates U.S. online ad spending grew 32 percent to $9.6 billion last year. But DoubleClick's ad management revenue actually fell from $33.3 million in first-quarter 2004 to $31.7 million in the same quarter this year.
“These declines were principally due to pricing declines outweighing volume increases for DoubleClick's advertiser and publisher solutions,” DoubleClick said in its earnings report yesterday. “These declines were partially offset by an increase in revenue for DoubleClick's rich media offering.”
CEO Kevin Ryan, in the third-quarter earnings call, was prescient when he expected prices to “bottom out” sometime this year.
It is clear that DoubleClick faces stiff competition in ad-serving services from rivals like 24/7 Media, Accipiter and aQuantive. But ad-serving prices have fallen in recent years, forcing DoubleClick to deliver animated rich media ads carrying higher prices.
A deal inked this month with Time Warner's America Online may partially reverse the fall in ad-serving revenue. Once implemented, it will be DoubleClick's largest ad management deal ever. DoubleClick will offer its ad-serving, inventory management, workflow tools and delivery options to AOL Media Networks, which is the ad sales, commerce and search unit of America Online.
DoubleClick improved its ad management, e-mail, search engine and affiliate marketing products, leading to better margins in its TechSolutions segment. The Performics and data management divisions are generating higher year-over-year revenue.
For example, Performics' search engine and affiliate marketing products generated revenue of $6.3 million in the first quarter of 2005, a 50.5 percent jump from the year-ago period. DoubleClick bought Performics in June.
Mickey Alam Khan covers Internet marketing campaigns and e-commerce, agency news as well as circulation for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters