Google to buy DoubleClick for $3.1 billion

World's top search engine beats out Microsoft and others in bidding for DoubleClick, a leading digital marketing services firm.

By Paul R. La Monica, CNNMoney.com editor at large

NEW YORK (CNNMoney.com) -- Search engine leader Google is buying privately held DoubleClick, a top digital marketing services firm, for $3.1 billion in cash, the companies said Friday afternoon.

Google (Charts) is buying DoubleClick from private equity firm Hellman & Friedman, which bought DoubleClick in 2005 for $1.1 billion in a deal that took the company private.

For Google, the deal will likely help boost its presence in the area of Internet display advertising, ads on banners, videos and other non-text based types of ads. DoubleClick specializes on placing and serving banners and other display ads on prominent Web sites.

"Google is the 800-pound gorilla in online advertising. They were before this merger and they will be tomorrow so on one level this doesn't change anything," said Derek Brown, an analyst with Cantor Fitzgerald.

"But at the same time, this deal clearly has the potential to ignite Google's efforts in the display ad market and down the road gives them the opportunity to create a platform that marries search and display ads in a way that it will be hard to fathom others imitating," Brown added.

Google has been bulking up in display through internal efforts as well as last year's acquisition of online video firm YouTube, but still trails rival Yahoo! (Charts) in the display market.

"DoubleClick's technology is widely adopted by leading advertisers, publishers and agencies, and the combination of the two companies will accelerate the adoption of Google's innovative advances in display advertising," said Google CEO Eric Schmidt in a statement.

The companies added in the statement that the deal, which should close by the end of the year, will lead to more relevant ads for consumers and a more efficient ad buying and selling process for online publishers and advertisers.

During a conference call with analysts on Friday afternoon, Schmidt said Google had been thinking about making this acquisition for a "very, very long time."

Schmidt added that the addition of DoubleClick to Google's business would strengthen Google's position with large brand-name advertisers, who tend to rely more on display ads than the search ads that are Google's bread and butter business.

Google's deal for DoubleClick is both a blow to Yahoo and Microsoft, which also was said to be interested in buying DoubleClick. Microsoft (Charts) owns MSN, the third largest search firm, and has struggled to catch up with Google and Yahoo in the online advertising business.

DoubleClick also announced earlier this month that it was setting up an auction-based online exchange for buying and selling Internet ads. This development likely made DoubleClick even more attractive to Google and other bidders.

During the conference call, Schmidt was asked about why Google felt the need to pay as much as it will for DoubleClick. The deal is Google's largest to date.

Earlier this month, many on Wall Street speculated that DoubleClick could sell out for $2 billion. But Schmidt defended the price tag.

"When we looked at DoubleClick, we felt after a very detailed financial analysis that we could afford to pay this and that it would be a good deal for us and our shareholders," he said. Google has more than $11 billion in cash on its balance sheet.

Trip Chowdhry, an analyst with Global Equities Research, added that the acquisition was, in part, a defensive move, a way to keep Microsoft from gaining a larger foothold in the online ad market.

"Microsoft gave Google a wake-up call by showing interest in DoubleClick. If Google did not buy DoubleClick, it could have lost out on millions in ad revenue a year to Microsoft," he said.

But Chowdhry criticized Google for waiting so long to buy DoubleClick. He said Google could have purchased the company two years ago for only $1 billion or so instead of letting it get taken private.

With DoubleClick off the market, takeover speculation could turn to rivals such as aQuantive (Charts), ValueClick (Charts) and 24/7 Real Media (Charts). Shares of these three companies all rose more than 5 percent in after-hours trading Friday. Google's stock dipped slightly after hours.

Google and Yahoo are both scheduled to report their latest quarterly results next week.

Analysts quoted in this story do not own shares of companies mentioned in this piece and their firms have no investment banking ties with them. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.