Click Your Heals Twice DorthyClick

Google’s acquisition of DoubleClick for $3.1 billion indicates that we aren’t in Kansas anymore.  Fred has a good riff titled The Banner Is Back and the WSJ does a good job decomposing the return for private equity firm Hellman & Friedman.  Finally, Paul Kedrosky weighs in with some interesting “Microsoft vs. Google” speculation and a suggestion that we are looking at a 12x FTM revenue multiple for ClickClick.

For those of you too lazy to clickclick once through to the WSJ analysis, H&F bought DoubleClick for $1.1b in 2005, although it appears they only used $330m in equity for the purchase.  They sold off several pieces of DoubleClick (Abacus for $430m and the email business for about $100m) resulting in a return of over $3.6b for an investment of $330m less than two years ago. 

No one has mentioned any cash dividends that H&F might have taken out of the business so the number could be even higher (and – depending on how things are structured – the investment basis might be even lower.)

There’s only one word for this.  “Score!”

I’ve had my share of experiences with DoubleClick over the years (competition, acquirer of one of the companies I was an investor in, and investor of another company that I’m an investor in.)  Now that they are destined to be part of Google, it’ll be interesting to see if they finally live up to their potential or if this is merely yet another chapter in the long and convoluted story that is DoubleClick.

  • Hellman & Friedman’s acquisition of Double Click is probably one of the best technology-media buyouts of all time. Not only did the H&F team take a gutsy contrarian bet at the time, as they called the ad cycle perfectly, they seem to have made all the right strategic operating moves along the way by breaking up the business. Kudos.

  • Dasher

    Brad, I am not too familar with the PE world. Can you please explain how H&F can spend just $330M to fully acquire a company valued at $1.1B? Sorry if this is a dumb question, but I am not very familar with how this stuff works. Thanks.

  • Dasher – DoubleClick had cash on their balance sheet (I vaguely remember it being in the $400m+ range.) So – that effectively can reduce the purchase price since H&F can use DoubleClick’s own cash to buy part of the company. In addition, H&F could have borrowed the balance of the cash – a 1:1 leverage ratio is very low (they likely could have raised a lot more if they had wanted to – and might have.)

  • Dasher

    Thanks for the explanation Brad.

    So it was really $700M net. Wow, they got 75% of it back by selling abacus and the email marketing business. So it is really the remaining 25% ($175K) that returned them $3.1B. That is a big time score.

    In hindsight H&F has done an amazing job in evalauating the assets of DC. I am surprised to read that the deal was seen as a risky (or even dumb) at that time. There must have been other dot com assets that were picked up on the cheap 2 to 3 years ago. This only goes to show that the best time to buy is when no one is buying.