5 questions with Linda Gridley

The $750 million in stock that Google paid for AdMob last week is 16 times the $46.8 million in venture capital that the mobile ad network raised.

Linda Gridley—who heads the investment bank Gridley & Co.—says that although $750 million may be a drop in the bucket for Google, the high price confirms her theory that bubble-like valuations for Internet companies have returned “with a vengeance.”

Over the summer, Gridley met with more than 150 companies to ask about their perspectives on deals. PE Week contributor Deborah Gage asked Gridley five questions about what she sees coming in the M&A market.

Q: Do you expect to see more acquisitions of venture-backed ad networks?


I think we will see more deals, although how widespread this is depends on how many buyers can afford to play this bubble-like game.

We certainly expected this from Google, since CEO Eric Schmidt said six weeks ago that they were going to do a deal a month, and I think Microsoft and Yahoo will also be active.

Adobe now owns Omniture, and there was a strong rumor that Omniture was about to buy one of the optimization platforms before the deal with Adobe, so now Adobe has a platform for broader optimization.

Q: What are some other possible targets to be acquired?


There are companies pulling pieces of data to get optimization that’s more valuable. Quantcast, DataXu, AppNexus, AdMeld and The Rubicon Project are all in that area, also Audience Science, a behavioral-based ad network.

Across each category, there are a number of different opportunities. More broadly in online advertising, there’s a tremendous amount of investment opportunity out there. HubSpot raised money at a pretty fancy valuation a couple of weeks ago. They’re not at the scale of AdMob, but it’s a good company.

Q: What about a company such as Waterfront Media, which operates as an ad network and a content network for the health care industry?


They’re rumored to be on the IPO trail. On a separate theme, you’re going to see some really good companies that are sizeable and profitable go public and become much more influential as public companies, and Waterfront is a good example.

You need to be sizeable or have a really good reach within whatever vertical market you’re reaching, and Waterfront has that. A lot of ad networks don’t have that point of differentiation, and for companies in that category, the world will be tougher over the next two years than it was over the last two years.

Q: Are ad networks seeing a bubble?


Google and Microsoft can’t buy everything. So the downside is that everybody thinks they’re an AdMob, but not everybody is.

The fear is that once investors see some ad networks file IPOs, everyone will think all their portfolio companies can go public or sell to Google. For some, that will work. But for the vast majority, it will screw pricing again.

Q: How is online privacy concerns affecting ad networks?


People are definitely talking about it, and there’s concern of the government being involved. It will affect how much near-term consolidation you see. There’s enough noise that it should be a data point on your PowerPoint presentation to consider when you’re asking for funding.