ValueClick (VCLK) – Part 1 - Accretive acquisitions driving growth

ValueClick emerged from a split-up of the Internet advertising division of Web-Ignite in April 1998. This division pioneered performance based advertising on a cost-per-click (CPC) basis as a viable business model. Since then, the company has focused on creating an ecosystem around its performance based advertising model. With sustainability as its goal, ValueClick steadily acquired several other companies. The following table lists the various acquisitions, price, and technology gained:

Company	Date Acquired	Price	Approximate VCLK Stock Price	Technology
StraightUp	10/2000	NR	$4.5	Reporting
Bach Systems (DBA onResponse)	11/2000	$3.9M+ in cash	$4.5	Cost-per-acquisition, Cost-per-click & Cost-per-action
ClickAgents	11/2000	$24M+ in stock	$4.5	Allowed expansion of Performance-based banner advertising
Zmedia	2/2001	$11.7M in stock	$5.2	Co-registration Network of 4000 websites (Email Marketing)
MediaPlex	10/2001	$43.9M in stock	$2	e-CRM – real-time ad serving technology, Adware (offline marketing – hosted services)
Be Free	5/2002	$128.5M in stock	$2.7	Performance based Marketing services – hosted online marketing platform for businesses & affiliate marketing
Search 123	5/2003	$5M cash	$4.3	Search Marketing Technology
Commission Junction	12/2003	$58M cash	$7.9	Affiliate Marketing
Hi-speed Media	12/2003	$9.5M + $8M max cash	$7.9	Opt-in email marketing
Price Runner	8/2004	$29M + $6M max cash + 263,000 shares	$7	Comparison Shopping – Established in Europe
Web Clients	6/2005	$141M ($122M cash, 1.8M shares + 350000 options), $59M revenue	$10.3	Lead-generation for advertisers from its own websites + Affiliate Network + Email Marketing
Ebabylon	6/2005	$11.7M cash + $3M max, $17M revenue	$10.3	Online ink & toner retailer. Foundation for eCommerce business
FastClick	9/2005	$133M (15.6M shares + options for 1.2M shares), $70M revenue	$15	Display-ad network for advertisers & publishers
Mezimedia	Announced 7/2007	$100M cash + $250M incentivised, $40M revenue	$31	Comparison Shopping – US & China foothold

The company opted to use stock as the primary currency to fund the acquisitions made prior to June 2003 and cash for transactions thereafter. Analyzing the share price appreciation since then, in hindsight it is evident, that cash was the better currency for the acquisitions conducted prior to June 2003. The balance sheet was substantially strong in the cash sector, since ValueClick’s IPO in April 2000 through June 2003.

Moreover, using stock as currency had the adverse effect of increasing the number of outstanding shares by another 40M (helped by a stock buyback program employed around that timeframe for 27M). Those 67M shares are now valued close to $2 billion, accounting for roughly two thirds the value of the company. It is also worth pondering that the 48M shares issued for the acquisition of Be Free representing almost 50% of the outstanding shares was especially expensive- given affiliate marketing represents only about 20% of the company’s revenue.

Even with dubious decisions on using stock as currency, the acquisitions were indeed accretive and the company has expanded both its revenue and earnings per share in the last couple of years.

The 2nd part of the article will focus on the company’s efforts to realize synergy among the various businesses brought together.

ValueClick Analysis:

1. Part 1 - Accretive Acquisitions Driving Growth.
2. Part 2 - Developing Synergy Among Different Businesses.
3. Part 3 - Business Issues.
   

Stock Analysis:

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5. ValueClick (VCLK).
   
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