Big Exit For Firms In DoubleClick Buy

Target: DoubleClick

Price: $3.1 billion

Sponsor: Google Inc.

Seller: Hellman & Friedman; JMI Equity

Financial Advisor: Seller: Morgan Stanley and Bear, Stearns & Co.

Legal Counsel: Seller: Simpson Thacher & Bartlett; Sponsor: Wilson, Sonsini, Goodrich & Rosati

The private equity firms that two years ago snapped up Internet advertising specialist DoubleClick are now in line for a gigantic payday.

Web titan Google Inc. earlier this month added DoubleClick to its growing arsenal of services, agreeing to pay $3.1 billion for the portfolio company of Hellman & Friedman and JMI Equity. In April 2005, the two buyout firms together wrote an equity check of about $340 million as part of a $1.1 billion delisting for DoubleClick, which helps manage banner ads on Web sites. The sale to Google returns an estimated 8x equity gain for Hellman & Friedman and JMI Equity.

The deal also highlights the increasing coordination between buyout shops and venture capital firms, especially in technology (see cover story.) San Diego-based JMI Equity’s investments span the range from early stage investments to buyouts. The firm teamed up again with LBO juggernaut Hellman & Friedman last month in offering $1.8 billion to take private software firm Kronos Inc.

The DoubleClick deal caps a big month for San Francisco-based Hellman & Friedman, which officially closed its newest investment vehicle, the $8.4 billion Hellman & Friedman Capital Partners VI LP. The new fund more than doubles the size of Fund V, a $3.5 billion pool closed in 2004. The firm declined comment.

When the buyout shops took DoubleClick private, the company had been languishing following several years as a darling of the Internet bubble. The company’s stock once traded as high as $135 per share, but Hellman & Friedman and JMI Equity were able to take Double Click over for $8.50 per share.

“The underlying value of the business was not clear from the quarterly reports,” said Paul Barber, general partner of JMI Equity, based in San Diego. “It took courage to buy and was real work to fix it.”

That work included installing a new chief executive officer and adding on to its technology platform. The private equity firms also supervised the sale of DoubleClick’s Abacus data division, which generated $405 million and allowed the pay-down of its first-lien and second-lien debts, according to Moody’s.

Neither Google nor Hellman & Friedman released financial information about DoubleClick, making precise calculations about multiples difficult. But while analysts consider the deal enormously expensive—it values DoubleClick at 25x to 30x estimated 2007 EBITDA—they also said the company’s strength in generating revenue from banner ads would complement Google’s growing dominance of the search-related ad business. In a research note, Citigroup analyst Mark Mahaney wrote that Google controls 75 percent of search advertising, compared to just 30 percent of display advertising.—J.H.