NEW YORK/LONDON (Reuters) - WPP Group Plc (WPP.L), the world’s second-largest marketing services company by revenue, is buying Internet ad firm 24/7 Real Media Inc. TFSM.O for $649 million to beef up its presence in the fastest growing segment of the advertising market.
WPP said on Thursday its GroupM agency expects online advertising to exceed $33 billion this year, or more than 8 percent of global ad spending, and is seen growing strongly in the future.
The deal marks the latest in a spate of acquisitions in the online ad market. Google Inc. (GOOG.O) bought DoubleClick Inc. for $3.1 billion, Yahoo Inc. YHOO.O is buying the rest of Right Media Inc. for $680 million and Publicis (PUBP.PA) acquired Digitas Inc. for $1.3 billion.
London-based WPP agreed to buy all the shares of 24/7 Real Media for $11.75 each, or a 30 percent premium over their average closing price for the last 60 trading days.
The price is only 4 percent higher than Wednesday’s close, however, as 24/7 Real Media shares have surged to a six-year high since reports that WPP and Microsoft Corp. (MSFT.O) were interested in buying the company.
“Our clients and therefore our industry are becoming more technology driven,” WPP Chief Executive Martin Sorrell said in a statement. “24/7 Real Media significantly enhances our capabilities, technological resources and talent, as well as adding to our geographic coverage and our measurable skills.”
New York-based 24/7 Real Media, which was founded in 1995 and employs about 400 people worldwide, sells search marketing services and operates a network of Web sites that run online ads.
WPP shares were up 1 percent to 763 pence while 24/7 Real Media’s gained 4 percent to $11.71.
The transaction is expected to close in the third quarter, 24/7 Real Media said in a statement.
Sorrell told the Reuters Global Technology, Media and Telecoms Summit on Tuesday that WPP was eyeing small- to medium-sized acquisitions of digital advertising companies amid growing competition from Google and others.
WPP has invested in smaller ad companies, including Spot Runner, which created a Web-based technology for placing television commercials, and online video game network WildTangent.
WPP said the 24/7 Real Media deal would reduce earnings by about 1 percent in 2007 and 2008, and it identified cost savings of about 2.5 million pounds ($5 million). The company said its 2007 operating profit margin target remains at 15 percent.
The deal value of $649 million represents 3 percent of WPP’s market capitalization, the company said. It will pay $637 million to 24/7 Real Media shareholders and said unvested stock and options were valued at $49 million. The transaction also brings with it net cash of $37 million.
Analysts at Numis said the deal would strengthen WPP’s exposure to digital marketing services and while they estimated a 1 percent dilution from the deal, they said the longer-term growth potential would be improved.
Lehman Brothers and Piper Jaffray advised 24/7 while Goldman Sachs advised WPP.