Almost six months after the companies started talking, WPP and Microsoft have reopened talks that could have the software company unloading Avenue A/Razorfish. But the question is whether Microsoft could ever get anyone to buy the digital ad agency for the price at which it needs to sell it.
What Microsoft paid for the agency and what any holding company would shell out are vastly different figures — although WPP holds an edge over other holding companies because it has assets Microsoft might be interested in, namely the ad-serving technology bit of 24/7 Real Media.
Here’s how a deal could unfold, according to people familiar with the discussions: Microsoft unloads the agency in exchange for a WPP package that includes 24/7′s Open AdStream publisher ad-serving tool plus cash. While Avenue A’s price would be higher than most agency deals, very few interactive agencies with that kind of scale are available for acquisition.
Avenue A|Razorfish is an ad agency specializing in interactive media and is an uncomfortable fit for Microsoft which wants to make money from all advertisers and publishers without questions of favoritism about a house agency. Similarly, WPP Group is a holding company for advertising agencies and the Open AdStream ad serving tool doesn’t fit either.
Klaassen’s thesis is that since Microsoft overpaid for aQuantitive, it is going to be hard to find someone to pay for Avenue A|Razorfish anywhere near what Microsoft paid. That’s why a swap with WPP Group is a good fit since it is similarly believed to have overpaid for 24/7 Real Media and they could obfuscate the real value with a swap. I’m dubious as to how important that reason really is since acquisitions often result in a grab bag of extra pieces that are sold off at "bargain sale" valuations. Of course, since Avenue A|Razorfish accounted for 60% of aQuantive’s revenues, it is a trifle hard to see which is the tail and which is the dog.
In any case, beyond face-saving reasons, it seems like a good match. WPP specializes in owning ad agencies and Microsoft needs an ad serving service in their eternal quest to keep up with Google which is busy widening the beta of their competing (and free) Ad Manager service.
The Internet advertising consolidation continues apace with the news today that the WPP Group has bought Schematic, a Los Angeles based interactive ad agency with some major clients like “Coca-Cola, Condé Nast Publications, Walt Disney, NBC Universal, Target and Time Warner.” No terms were announced and unlike WPP’s acquisition of 24/7 Real Media, there’s no hint that Microsoft was in on the bidding although there apparently were other interested parties.
At the start of the month, the buzz was that Internet advertising company 24/7 Real Media was in play with Microsoft and WPP Group (an advertising conglomerate) competing for the acquisition. Today comes word that WPP won the deal for $649 million. There may not be any kiss and tell revelations about Microsoft wooing 24/7 Real Media, but regardless, the consolidation in Internet advertising is proceeding rapidly and Microsoft always seems to get left standing at the altar.
After losing out to Google in the bidding battle for DoubleClick, Microsoft reportedly has its eyes on 24/7 Real Media, another Internet advertising company, according to Holly Sanders at the NY Post:
Eager to catch up with Google and Yahoo!, Microsoft has emerged as a contender, along with ad giant WPP Group, to buy Internet ad firm 24/7 Real Media, The Post has learned.
WPP Group is a large advertising holding company which owns Ogilvy & Mather Worldwide, Young & Rubicam, and JWT (formerly known as J. Walter Thompson Co.), as well as some PR firms, media buying firms, and market research companies.
Sources said the software giant is considering a price in the $1 billion range for 24/7 Media – a giant leap from the $600 million valuation analysts placed on the firm.
Microsoft, which has been kicking a lot of tires in the last few weeks, is getting serious about the ad firm after two of its fiercest rivals increased their online arsenals through similar acquisitions.
Yahoo! announced yesterday it would buy the 80 percent of online ad exchange Right Media it didn’t own for $680 million, valuing the entire firm at around $850 million. The acquisition follows Google’s $3.1 billion deal for DoubleClick, which serves up and tracks Web ads.
Microsoft’s deep pockets and fear of falling behind rivals could further drive up the price for 24/7 Real Media, one of the remaining players in the same space.
24/7 Real Media has an earnings release coming up on May 9, but lately they have been losing money. One wonders how much Microsoft will have to overpay to demonstrate that it’s really an Internet advertising player.