Microsoft, WPP, Avenue A, Open Ad Stream – Oh My!

Posted: August 25, 2008 in Agencies, Consolidation, Datanomics, The Marketing Industry, Uncategorized
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As someone who follows the digital agency world very closely, and the former CEO of an agency that once was in talks with Avenue A about an acquisition – my hats (because I wear multiple of course) go off to the agency for becoming the recipe of legend. After arguably becoming the most powerful stand alone digital media agency, developing what is now the second largest ad server in the industry, building a behavioral targeting network, creating a holding company (aQuantive) , and acquiring Razorfish (and a few smaller shops that everyone seems to have forgot already – remember i-Frontier?), and eventually getting acquired by Microsoft – Avenue A has basically accomplished what no other digital agency has and secretly wished for.

An acquisition of Avenue A by WPP would be a huge boon for the holding company, albeit would damage a lot of egos and create an awkward totem pole within GroupM. In the grand scheme of things however, this deal would help secure WPP’s positioning as the digital powerhouse among the agency networks, providing a significant boost in both scale and talent.

The potential deal would actually be an interesting structure, considering that Microsoft overpaid for the agency in the first place.

According to Ad Age:

Consider that in May 2007 Microsoft dropped $5.9 billion for aQuantive’s three businesses: Atlas, DrivePM and Avenue A. The deal was completed last August. While Microsoft was primarily interested in the first two businesses to help build out a massive ad platform, the latter accounted for 60% of aQuantive’s revenue. While $3.5 billion — 60% of $5.9 billion — isn’t necessarily indicative of Avenue A’s valuation in the Microsoft-aQuantive deal, there’s no way Microsoft would get even close to that for the shop. That figure approaches the market cap of WPP rival Interpublic Group of Cos. ($4.4 billion), and WPP’s own market cap is $10.7 billion. Selling Avenue A for market value would only highlight how much Microsoft overpaid for the No. 2 player in the ad-serving space. (Weeks before the Microsoft deal, the No. 1 player, DoubleClick, was snapped up by Google for $3.1 billion.)

According to the Ad Age article and people familiar with the discussions: Microsoft may “unload” the agency in exchange for a WPP package that would include 24/7’s Open AdStream publisher ad-serving tool plus cash.

Exciting times…

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