To aQuantive, Second Time’s a Charm

aQuantive’s acquisition of NetConversions last week—the holding company’s second in less than two months—is “more the exception than the rule” in terms of the company’s growth strategy, said Brian McAndrews, president and CEO of aQuantive, parent of Avenue A, i-Frontier and Atlas DMT.

“Good opportunities do not come along that frequently,” McAndrews explained last week.

The company’s Atlas DMT technology unit picked up NetConversions, a Web-site-usability company, for $4.5 million in cash and up to an additional $2.5 million over two years, based on meeting profitability goals. The acquisition follows Atlas DMT’s December purchase of Go Toast, a provider of paid-search management and optimization tools. Terms of the cash and stock deal were undisclosed.

As to whether there are other purchases on the horizon for aQuantive, which had $123 million in cash and no debt at the end of last year, McAndrews said growth by acquisition is not aQuantive’s core strategy. But he conceded, “we are profitable, we have a lot of cash and stock that has value, so we are certainly open to other acquisitions that make sense. Our strategy has been to look for … profitable, well-run companies that we believe will be accretive to our earnings.”

NetConversions and Go Toast posted 2003 revenue of $1-2 million and $3-4 million, respectively. After adjusting its forecast to reflect the purchases, aQuantive projected 2004 revenue of $88-98 million, up from $64 million in 2003.

“I think they were smart acquisitions,” said Chad Bartley, a research analyst at Pacific Crest Securities in Portland, Ore. “[NetConversions] is a nice complement to Atlas DMT’s existing services that they provide, and it will allow them to increase the spending that advertisers are already doing with them.”

NetConversions, a 5-year-old Seattle-based company that has clients such as Office Depot and Priceline, identifies how Web sites can be improved for better customer conversion rates. “You get a customer to your Web site—you finally get them to come to the well to have them drink,” said Atlas DMT COO Ona Karasa. “NetConversions allows advertisers to drill down to find out why they might not be drinking the water.”

While the latest acquisitions add Web-site usability and paid-search management capabilities to Atlas DMT, future purchases could expand the domestic and international footprints of the Avenue A and i-Frontier subsidiaries, McAndrews said. “Over time, it may become more relevant to [our clients] to have an offering that goes beyond the U.S.,” he said.

Still, Seattle-based aQuantive remains focused on organic growth. Its Avenue A online-media unit, for instance, opened a Chicago office in February with JCPenney.com as its first client. It was aQuantive’s third expansion in its seven-year history; the company established a presence in Philadelphia with its late-2002 purchase of i-Frontier and in New York with its 1999 acquisition of iballs, renamed Avenue A/NYC in 2001.

Meanwhile, Avenue A recently added new business from Apple, Forest Pharmaceuticals and Geico, the company confirmed. “We do feel very bullish about the coming year,” said McAndrews. “People are not saying, ‘Should I advertise online?’ but ‘How should I advertise online?’ “