A Tale Of Two Acquisitions
Direct Response wasn’t the only company in the news this week because of an acquisition. In what could be construed as a case of one-upmanship, Think Partnership, the parent company of competitor affiliate network solutions provider, KowaBunga, announced that it made a(nother) purchase of its own on Tuesday, one day before the Direct Response announcement, this time acquiring a relatively unknown Morex. The price on that deal was not insignificant, with an upfront of close to $10 million and an earn out that could add upwards of $30 million more.
The past year has not been kind to Think Partnership, also known as CGI Holdings. They have seen their stock price fall two-thirds from six dollars to two and their market cap, once close to $200 million, now down to less than $80 million. That did not stop me from writing an upbeat article two and half months ago about Think, titled “A Giant in the Making” As was said then, the company “has a long way to go before they challenge the company they most closely emulate, Valueclick, but daunting a task as that might seem, especially for one that did not have the benefit of an IPO during the early Internet heyday, the little company that could might just pull it off.”
Calling Think Partnership a mini-ValueClick that wants to be a full-fledged one is valid, but perhaps the little company that could has its hopes set more on emulating someone else. Similar to ValueClick that someone else has also grown through acquisition, but rather than buy a seemingly unrelated mix of interactive firms, this company focuses on ones that reach individuals during key times in their life. As this “someone else” put it in last year’s press release announcing their acquisition of ClassesUSA, they look to become the leading interactive marketing company associated with “large-scale financial transactions and attendant life events.” This someone else is, of course, none other than Experian Interactive.
Fast forward from that release to the Morex one, and a key phrase sticks out, “Life-Stage(s).” That is the phrase used to describe Morex’s marketing. They target expectant mothers – a very attractive and currently underserved market from a lead generation point of view. Think obviously seemed to find it attractive too. The $9.4 million dollars they paid upfront in cash for the company, one that earned $3 million in pre-tax earnings last year, came from debt financing, again. For Morex to realize the maximum earn out, though they must quadruple last year’s earnings in one of the next three years.
CGI Holdings / Think Partnership has certainly been a fun company to watch, not the least of which comes from their aggressive aggregation strategy. It’s more impressive considering that companies ten times their size struggle to find and convince good candidates, whereas the smaller shop has had no problems. Consider their $1.55 million 51% stake in Crystal Reference Systems. No doubt any number of other ad companies would have come in and paid more for that asset. The real fun though comes, just as in life, from the drama such acquisitions can cause. For reasons that are somewhat clear but not entirely, there has been a feud between Think and today’s other featured company, Direct Response.
The drama between the two in all likelihood began with Think’s purchase of a then sizable Direct Track client, Primary Ads, a company that at the time of sale was barely two year’s old. Not only did Think take away a revenue stream and success story for Direct Track, they also happened to own Direct Track’s main rival, KowaBunga, creators of My Affiliate Program. That didn’t stop Direct Response’s founder and President, Jason Wolfe, from issuing a press release that cites the sale as a validation of his software’s power, a release that spent more time discussing Direct Track than the acquisition.
Whatever goodwill came from Direct Response’s self-promoting release of the Primary Ads acquisition ran out quickly. Understandably, Direct Track felt no desire to continue an open kimono relationship with its transitional client, and what followed was the first of many legal proceedings and additional, less congratulatory, press releases from Direct Response. And, just as the legal proceedings do not seem quite finished, neither does the saga. Or, then again, perhaps it has, as Direct Response finally got the vindication they always wanted, the same thing Primary Ads did, a payday.
Ultimately, what we see this week really is more than a potential rivalry. It is a tale of two acquisitions. The stars of the rivalry, as is often the case, aren’t quite as dissimilar as some of the press releases might make it seem. Both are veteran survivors, small underdogs trying to prove themselves in the press. Of the two though, Think Partnership has the much harder task. Unlike Direct Response, they must make their shareholders feel better. Think’s releases are as much to announce deals as it is to have the market believe in their strategy and ability to execute. Direct Response on the other hand, whose releases are like blog posts and are a success so long as it makes them feel better. Good luck to both.
