Google's deal to buy DoubleClick for $3.1 billion (£1.65 billion) is fascinating on a number of levels, and since I don't have a single unifying interpretation of it all I'll just dive right into the specifics.
There is, first of all, the price. At $3.1 billion, DoubleClick was acquired for an extraordinary ten times revenues, and the private equity firm that bought the company just two years ago made at least three times its money. DoubleClick was an early warhorse of the internet but always seemed to be falling short of its potential. Its stock price was stagnant even as the Web 2.0 bubble began to inflate, which was what enabled the private equity buyout to begin with.
So why the huge premium now? Google wanted to keep the company out of the hands of Microsoft or Yahoo!, and it genuinely wanted and needed DoubleClick to give it a foothold in internet display advertising. And, perhaps most importantly, the company is taking the view that it might as well use its cash pile to acquire long-term market position, even if the numbers make no sense from a traditional return-on-capital point of view. That's a very unusual posture: Microsoft, when it was in a similar position in the 1990s, never acted like that, and instead ultimately returned cash to shareholders.
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