Is Think Partnership More Valuable Than ValueClick?

Posted on May 22nd, 2007 with stocks: THK, VCLK

John Gilliam submits: There seems to be a great deal of interest in ValueClick (VCLK) today and many are suggesting that it could be a target for Microsoft ( MSFT), or perhaps one of the big players that wants to keep MSFT from buying VCLK.

On its face, such a deal makes sense, as MSFT has given us good evidence of their intent to be a player in this space with their $6 billion acquisition of AQNT. Additionally, the value in VCLK's assets are very complementary to the assets of aQuantive (AQNT), with very little overlap. Remember that these two almost merged last year for this very reason.

I believe that the $4 billion + price that would likely be necessary for a purchase of VCLK will make MSFT consider other alternatives, including a very small player in this space that has built a technology platform that has attracted some high profile customers, some whom have actually migrated from ValueClick.

Think Partnership (THK) has assets very similar to those ValueClick assets that would be so complementary to AQNT, primarily the Lead Generation business and the affiliate marketing platform. In each case, ValueClick's business is considerably larger than THK's, but I would submit to you that MSFT would find more value in a purchase of THK.

In the Lead Generation business, ValueClick is one of the largest players with its WebClients business. However, the practices in use at WebClients have attracted the ire of the Federal Trade Commission, as the company announced an FTC investigation of their practices just Friday. THK has a very strong and growing Lead gen business with its iLead subsidiary. The growth numbers are not as impressive the last couple of quarters because the company made a decision to eschew those practices that were attracting the negative FTC attention, but they appear to be back on track and growing again with their "white hat" approach. Its hard to imagine that MSFT or anyone else would want to buy into an FTC inquiry if they could get the lead gen platform without such negative exposure.

The Affiliate business is the other unique business ValueClick offers that would be complimentary to AQNT's business. ValueClick's affiliate platform has long been the leader in the affiliate marketing business. However, THK's "Kowabunga" division has developed a platform that many in the industry believe provides the best technology and the best value proposition. Recent happenings suggest that may be true. Yahoo recently chose the Kowabunga platform to power its affiliate business. Intuit was using the ValueClick affiliate platform, but migrated to THK's platform just a few months ago. Further, MSFT is launching a new affiliate program that will be using THK's Kowabunga platform - its live on the web as of Friday though it has not had the official launch yet. Thus, Microsoft, Yahoo and Intuit have recently had the opportunity to evaluate the players in the affiliate marketing space and each has ch! osen THK's Kowabunga platform over the VLCK platform.

One key asset owned by THK that has no comparable at VCLK or any other company is its proprietary click fraud prevention technology provided through its "ValidClick" subsidiary. The company owns the only "in the click stream" click fraud prevention technology currently in use. Microsoft and Interactive's Ask.com have been rumored to covet this technology as a value proposition differentiator for advertisers and publishers versus Google and Yahoo.

The ValidClick technology built out to a scale useable by large networks, its private label pay per click platform and its general availability to third parties for licensing are all fairly recent occurrences - it simply has not existed long enough to gain the traction necessary have a material impact on THK's financials. If MSFT or one of the bigger players decided they wanted to own this technology, now would be ! the time to buy it - before it becomes widely appreciated and ! before i t is monetized to its potential.

The bottom line is that a potential buyer doing their due diligence on ValueClick will likely stumble upon the Think Partnership comparisons. With the price tag of a ValueClick acquisition likely pushing well into the $4 Billion + range - one could surmise that they might consider investing $500 million - $600 million instead?

I cannot say at what price THK management (who own a large percentage of the shares outstanding), would sell the company. However, with its current market cap in the $200 million range, the recent deal valuations ranging from 1)TFSM at 31x 2007 EBITDA to the higher end of 2) AQNT at 45x 2007 EBITDA would place a value for THK in the $600 - $900 million range. It is hard to imagine that THK management would turn down the premium that MSFT or others might be willing to pay to own these assets