Most of the news around Yahoo (YHOO) over the past few weeks has been regarding the potential for a sale of the company or the monetization of Yahoo’s Asian assets. The last thing anyone expected to see was an acquisition.
Nonetheless, Yahoo announced the acquisition of interCLICK on November 1. The deal is being executed using a tender offer. Yahoo is paying $9 per share for interCLICK, which implies a total equity value of approximately $E270mm.
What is interCLICK?
The press release (linked above) provides a brief description of interCLICK:
“interCLICK, inc., headquartered in New York, was founded in 2006 and became a NASDAQ-listed company in 2009. Powered by OSM, interCLICK offers proprietary data-valuation capabilities combining analytical expertise and media fulfillment to help marketers navigate the complex data ecosystem to drive successful online display and video campaigns. OSM is a powerful solution which aggregates and organizes billions of data points from 3rd party providers - delivering actionable consumer insights, scalable audiences and the most effective campaign execution.”
What I get from this description is that interCLICK has some propriety analytical software that helps online ads find their target audience.
interCLICK’s form 10-K provides addition detail. interCLICK purchases display advertising impressions from online publishers (advertisers) and re-sells the impressions to companies seeking to advertise. Their value-add to the end customer is technology that find the right audience for the advertiser. As they say in their 10-K:
“The Company’s proprietary Open Segment Manager (“OSM”) platform organizes and valuates billions of data points on a daily basis to construct the most responsive digital audiences for major digital marketers. We generate our revenue through the sale by serving as a principal in transacting online display advertising between agency clients and third party website publishers. Substantially all of the Company’s revenues are generated in the United States.”
In 2010 interCLICK generated $101.2mm of revenue, up 83% from 2010. EBITDA was $13.0 for a 12.9% EBITDA margin.
What does this mean for Yahoo?
Yahoo sold off on the news of the acquisition, although with the Nasdaq composite index off almost 3% it is hard to parse out how much of Yahoo’s 4.5% decline is related to interpretations of what this acquisition could mean for the larger potential Yahoo transaction.
The thesis for an investment in Yahoo right now is simple. It is not because the company is going to get sold at a premium. If that is what you have invested, then sell now. The thesis is that the sum-of-the-parts (SOTP) is greater than the whole. Certainly, a sale of the company is one way that current investors can get paid closer to the actual SOTP in the near-term, but so is a sale of the Asian assets. Assuming they are sold at a fair price, the remaining entity or make the lack of value being ascribed to Yahoo’s core business far more transparent. Further, a sale of the Asian may be required before the core business could be sold to avoid rights of first refusal, right to offer, or other change of control provisions associated with the assets. And finally, if interCLICK helps Yahoo’s core business, and adds -value they should not pass on a strategic bolt-on (the price is not even 10% of Yahoo’s balance sheet cash) just because they are considering selling non-core assets or even the whole company.
Post-script: Don’t forget Third Point in all of this. As the activist that ripped apart the board in their September 8 letter, if they think this is a terrible use of cash we will likely hear from them. Unless they have signed an NDA and are locked up while the company undergoes a sale process …