This just might be a record, the last five posts on this blog all have to do with the Doubleclick / Google acquisition.

This post begs the question: clearly the winner in all of this is not DCLK or GOOG, but private equity investors Hellman & Friedman.  Then that begs the question, are the losers not public shareholders?

In April 2005, about to years ago, DCLK was trading for less than $1B and got a 15% premium from H&F.  DCLK’s board of directors approved the offer for $1.1B.  DCLK was off the public markets.  If my memory serves me right, the company had a $400M war chest to boot, meaning a net cost of $710M.  Assume the private equity investor used a very tame 1-to-2 ratio of equity to debt, and you are looking at a company that used $355M for DCLK.  As everyone has noted, DCLK then sold off an email unit for $100M, and the much controversial Abacus for $435M.  It did buy Klipmart for $50M, and then sold off the remaining assets to Google for $3.1B.  That is a killing indeed, anyway you look at it.  In one swoop, Hellman is a legend amongst titans of the PE field.  Not only did Hellman make 10 times its money, but it made 10 times its money in 2 years on a large equity base.  In other words, why invest $1M to make $10M when you can invest $300M and make $3B?

But… a deeper look reveals an interesting storyline: is this surprising?

At the time, companies like Valueclick, aQuantive and 24/7 Realmedia all traded at a fraction of what they do now:

VCLK: $11 in 4/2005 and $28 in 4/2007
AQNT: $11 in 4/2005 and $29 in 4/2007
TFSM: $3.15 in 4/2005 and $8.50 in 4/2007

DCLK’s peer group has effectively tripled in price.  I believe if my memory serves me right, that DCLK buyout price was about $8.50/share… so had it simply maintained its peer group’s growth rate, it too would be hovering in the high 20s.

It should be noted, that in April 2005, Iowned shares in all four companies.  I sold TFSM last year at its peak, I sold VCLK (bad Ash, bad Ash) sometime when I launched WatchMojo.com and needed to clean up my portfolio at about $20 (it’s now at $30!).

I have sold and bought back AQNT, one of my favorite stocks.  People are saying that VCLK is in play following the DCLK/GOOG deal, and that might be true, but all three companies will ask for big premiums, meaning that a deal might not go through, of course, we said that about DCLK too.  And the big fat joke was on us, or, at $3B in cash, maybe Google’s public shareholders.

And speaking of public shareholders, it seems to me, that they’re the big fat losers in this deal, because while many are hailing Hellman & Friedman’s “bold, contrarian bet” back in April 2005, it was pretty clear that the Web was experiencing a resurgence, and that shares in this peer group were set to rise.

My question is: who were the board members to voted for?  And who voted against?  I do not, in any shape, way, form or fashion suggest that there was any unethical act here, I just think that board members should, well, be able to tell their arses from their elbows and understand market trends and dynamics to protect public shareholders’ investments.

In fact, not to partake in revisionist history here (but let’s, please), had DCLK been sold to Google at that time, in stock, the DCLK shareholders would have gotten $1.1B (the amount Hellman paid) in Google stock, which in April 2005 had more than doubled since its IPO price of $85 to about $200/share… but it would have left DCLK shareholders much better off, with the stock being in the $440-500 range… meaning that had DCLK shareholders held on to Google stock, they would have effectively doubled their loot.

Would have, could have, should have…

We say that things haven’t changed all that much from the 1994-2000 era now, and much the same way that many public shareholders were left holding an empty bag then, it could be argued, that we’re suckers once again…

Reading a lot of people’s two cents on the matter, some were involved with DCLK over the years (as outsiders who did deals with the company, knew mgmt, or did research, and not, who were board members… and to be very clear, I have no doubt that the board members were acting ethically, etc., but I just think that while it takes time to see if deals pay off, at the time, at $1.1B, it was not shocking to see H&F eventually make a killing; at $3B, not sure if it will be the same for DCLK… but that’s another story, hint: see four previous posts).  

Feel free to chime in Fred Wilson, Brad Feld, Michael Parekh.

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