DoubleClick, the largest provider of online ad technology, has jumped on the hot search bandwagon, striking a deal to acquire search engine and affiliate marketing firm Performics.
The agreement represents an all-cash deal totaling $58 million, plus an earn-out of up to $7 million for a potential total of $65 million. The deal is expected to close by mid-June subject to certain closing conditions.
DoubleClick's client base of marketers, agencies and Web publishers will now be able to use Performics' search engine marketing and affiliate marketing products. In turn, Performics' clients will now have access to DoubleClick's performance-oriented marketing solutions, including online ad management, email and Web site analysis, through one partner.
The move puts DoubleClick in greater competition with ValueClick, which also offers ad serving, search engine marketing and affiliate marketing. It also pits DoubleClick more strongly against aQuantive, which owns search bidding tool GoToast.
"Finally, DoubleClick jumps into search," said Safa Rashtchy, an analyst with Piper Jaffray, in an email bulletin about the acquisition. Rashtchy described the acquisition as a good move because "search has become the fast growing and most important area of online advertising."
Paid search is predicted to grow to $4.3 billion by 2008, according to Jupiter Research, owned by the parent of this publication.
"When you have the chance to buy a company with a good client base and a good reputation that is already established, it's a good idea," said Nate Elliott, associate analyst with Jupiter Research, of the acquisition. "It's also good because DoubleClick is a technology company and Performics excels at professional services, so they have added that element."
When you ask search engine marketers what they are looking for in a third party SEM firm, bid strategy is one of the top answers, Elliott said. "So having technology isn't always enough. You need to be able to help clients use technology and understand search marketing. This is something Performics does well."
As a part of the integration, DoubleClick is developing a new tool, to be named DART Search, which combines i-SEARCH, Performics' search marketing bid tool, and a tool the ad technology firm had been working on separately.
"Our tool [DART Search] was a self-serve tool," said DoubleClick CEO Kevin Ryan when asked about the differences between the two. DART Search had not yet been released. Ryan indicated that i-SEARCH involves a service component in addition to the technology. "They [the two tools] would have been competitive tools in the marketplace. But the tools themselves were aiming to do the same thing. We are going to pull the best features of each one."
Piper Jaffray's Rashtchy also described Performics' affiliate marketing component as a "noteworthy" element of the deal. "This area, currently dominated by ValueClick and LinkShare, is a very fast growing segment that will continue to be a part of any online media buy," Rashtchy said.
Eleven of Performics' top 15 customers in terms of 2003 revenue are also DoubleClick customers. The two firms share catalog clients, as well as clients of DoubleClick's Abacus. This is significant because it's often hard for companies to get clients to use new tools, according to Jupiter's Elliott. DoubleClick's Ryan extolled this element of the deal in a conference call for investors Monday.
Performics has more than 200 clients, including America Online, Eddie Bauer and Kohl's, and is currently profitable, according to Ryan. Performics will continue to operate in Chicago as an independent business with 130 employees. It will be a separate business line in DoubleClick's Tech Solutions segment.
Ryan said "light integration" of the two companies would be in place within a couple of months of close. He predicted that users would be able to go into DART for Advertisers (DFA) and use a button or similar mechanism to access Performics a couple of months after the close. "The primary focus is integrating Performics into DFA so if I'm a DFA customer I can go into the tool and see the results across the board," he said.
Ryan said DoubleClick would leverage its assets to help Performics expand internationally.
"We are doing work to prepare for international expansion," Ryan said. "The vast majority of Performics' business is domestic, but I think there is going to be a lot of growth in Europe and given our footprint there, we will be the logical ones to help them with that."
It's already been a busy year for DoubleClick, which reported a dramatic rise in profit for the first quarter of 2004. The company made an earlier acquisition in March, marketing resource management software firm SmartPath.
DoubleClick reinvented itself as a provider of technological advertising solutions to survive the dot-com downturn and the resulting crash in online advertising spending. The company is now one of the central companies in the digital marketing space, and this most recent acquisition expands its base significantly.
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