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AOL could be set to pay almost $1bn for Swedish online ad group Tradedoubler in a bid to increase its ad revenues in Europe.

The internet giant said Tradedoubler’s board had recommended that its shareholders accept the bid, which at $900m (£450m) represents a 20% premium on the average price of the firm’s shares in the last 90 days.

Randy Falco, chairman and CEO of AOL, said:

"This investment provides a unique opportunity for both TradeDoubler and us to capitalise on the continued rapid growth in online advertising and e-commerce in Europe. We believe that TradeDoubler will be complementary with our other businesses, especially with our third-party advertising network - Advertising.com.”

AOL has been retreating from its subscription-based ISP business in Europe and focusing onto ad revenues – a move that saw the sale of its UK internet access unit to Carphone Warehouse in October.

Tradedoubler, meanwhile, has been benefiting from growth in e-commerce through its affiliate marketing activity, as well as from increased online ad spending through the ad network side of its business.

Another plus is that online ad networks are under pressure from agencies and advertisers to consolidate their inventory and offer more value for money – something the company could do alongside Advertising.com.

To put the deal in perspective, we estimated that the UK’s online ad network market doubled in size last year to £120m, when releasing our Buyer's Guide in December.

We also predicted that over £2bn in sales would be generated from affiliate marketing in the UK during 2006. 

E-consultancy Head of Research Linus Gregoriadis has been looking at the deal and thinks it could be a good fit:

“TradeDoubler has built its reputation in Europe first and foremost as an affiliate network offering a performance-based online marketing approach but has more recently been building its credentials as a provider of a broader range of online marketing services.

“As well as its affiliate marketing network, TradeDoubler has recently been increasing the strength and reach of its online display advertising network enabling it to help clients with both brand advertising as well as direct response objectives."

And for AOL?

“Significantly, AOL Time Warner bought Advertising.com in 2004, which operates the industry's largest advertising network and is a competitor to TradeDoubler, with a similar proposition offering results-based performance and branding campaigns for clients and agencies.

“The difference is TradeDoubler’s much larger footprint in Europe as an affiliate marketing network. Having both these companies in its stable will allow AOL to bolster its strength and market share, enabling the media giant to meet its goal of boosting ad revenues in Europe.

"Potentially, there will also be scope to reduce costs through increase efficiency though the effect which any successful acquisition would have on the operations of both companies – in terms of both technology and employees - remains to be seen.”

[Update - investors representing around 20% of Tradedoubler's share capital have backed the takeover, but others say AOL will need to raise its offer]

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Published 15 January, 2007 by Richard Maven

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