eROI Days Email Agency

Last Friday, Microsoft agreed to purchase online ad firm aQuantive for $6 billion which is an 85% premium over its stock price. As an entrepreneur and founder of a company (eROI) that has a similar business model to aQuantive, I’m floored (and highly encouraged) that Microsoft paid so much money for this interactive agency that has some of its own software tools as well.

[Huge Disclaimer: I'm not looking to get investment or sell my company for decades - this blog post is simply out of observation].

OK, let’s look at the metrics of aQuantive and see what kind of multiples Microsoft paid for them. Based on annualizing Q1′07 revenue, aQuantive will do roughly $600 million in revenue this year, so Microsoft paid a 10x multiplier of revenue. Additionally, Microsoft paid a nearly 50x multiplier on EBITDA.

The fascinating thing from my entrepreneurial training is that one of the powerful companies in the world, Microsoft, finds value in an online creative agency – far more value than 1x revenue multiplier that most agencies are used to getting.

OR, the other scenario would say that Microsoft discounted the agency revenue / EBITDA (roughly 60% for aQuantive) and paid an astronomical price for the Atlas and DrivePM software pieces of the aQuantive business.

Despite the high price, Microsoft needs desperate help to compete with Google in the online ad software (and agency) world. This deal will only be successful if Microsoft lets aQuantive retain most of its entrepreneurial culture instead of assimilating it into the Microsoft machine.