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Advertising - Friday, May 18, 2007

Breaking The Deal Down. Microsoft Bags aQuantive At $6B

After Google bought DoubleClick, aQuantive was the top prize remaining. aQuanitve (AQNT) owns online media agencyAvenue A | Razorfish, ad server Atlas and performance-based advertising network DRIVEpm.

Price/Valuation
So much for Microsoft's boast that it does value investing.
+ Microsoft will pay roughly $6B in an all-cash transaction. Yesterday, aQuantive had a market cap of just $2.8B. 2006 revenues for aQuantive were $442M and net income came around $54M. Microsoft is paying close to 10x the Street consensus 2007 revenues for aQuantive of $616M, and more than 86x estimated 2007 EPS of 77 cents a share.
+ In contrast to 24/7 Real Media's latest quarter, aQuantive nailed its quarter. Profits rose 87%, net income rose to $14.6M while revenue was up to $142.6M. Momentum matters.
+ This is twice the size of Google's Doubleclick buyout and this is by far the largest acquisition Microsoft has ever made.

Fit
+ We had always thought that aQuantive made better sense for Microsoft for several reasons, not the least of which is that its HQ is in Seattle and given the coordination that will be required in a merger that seems valuable.
+ Also, MSFT has been an aQuantive customer for many years so it has the SWOT analysis down cold. In our view, aQuantive rivals Doubleclick as it is more well rounded and has been better managed.
+ Doubleclick's trump card is really that it is more users of its ad server DART.
+ aQuantive spent about $200M between 2004 and 2006 acquiring Accipiter, NetConversions, DNA, iFRONTIER, Franchise Gator, Amneisa, e-Crusade, GOTOAST, Neue Digitale, Technology Brokers/Media and SBI.Razorfish. So the company has a lot of experience in integrating companies. Or rather, it knows how to let its companies operate as they know how to best.

The analyst call did not provide much in the way of substance. Perhaps the most interesting point was that Microsoft still makes the case that Google + DoubleClick is anti-competitive and violates anti-trust. If you want to hear the analyst call dial 800-774-9248, 402-220-0372 international if you want to listen to the call.

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