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AOL Bets $425M on Advertising.com

UPDATED: America Online sent a strong signal about the health of the targeted online ad marketing sector on Thursday with a $435 million all-cash deal to acquire Baltimore-based Advertising.com.

The deal, AOL's biggest acquisition since its merger with Time Warner, signals a trend among big media companies to buy into online marketing services in order to find new revenue opportunities on the Web. The acquisition mirrors Yahoo's acquisition of Overture and gives AOL a significant entry into the market for direct marketing and promotional campaigns on the Web, e-mail, and wireless platforms.

It effectively allows AOL, like Yahoo, to sell inventory on other publishers' sites.

"The timing for this acquisition was very good. The advertising business has rebounded and is growing again. Advertising.com is growing on a strong trajectory and we think this is a valuable deal for us," AOL chief executive Jonathan Miller said on a conference call with journalists.

"We intend to play big across the board in all the forms of Internet advertising. This acquisition says that in no uncertain terms."

Miller said AOL spent a lot of time on the financial aspect of the transaction and described the $425 million price tag as "fair and reasonable."

Miller also disclosed that AOL was an early investor in Advertising.com. The media giant invested $5 million in 2000 as part of an early venture capital funding round.

"Advertising.com will extend our advertising footprint on the Web, giving us unparalleled reach, and allow us to serve our advertisers better with more efficient campaigns," AOL vice chairman Ted Leonsis.

Advertising.com powers an ad network that purchases inventory on an impression basis and resells it to advertisers on either cost-per-action or cost-per-click pricing. It connects marketers and ad agencies to hawk online direct marketing and promotional services.

The company's AdLearn technology is hailed throughout the industry because it allows advertisers to keep a close watch on Web-based campaigns. Advertising.com, launched in 1998, also offers services for campaign reporting and analysis, electronic CRM (define) and brand measurement.

The transaction comes less than two months after Advertising.com filed the paperwork to raise about $100 million in an IPO.

According to Advertising.com's S-1 filing, the company generated $132 million in revenues in 2003 and earned $18.7 million. The revenues represented a $74 million increase over the previous year's takings.

Advertising.com CEO Scott Ferber said the decision to forego an IPO and merge with AOL was a "a much bigger opportunity to get bigger, faster."

"We were very fortunate to have had a choice to make. When we were approached by AOL, our board had to decide whether to pursue the IPO or whether to do the acquisition and it came down to how can we become bigger, faster," Ferber added.

Once the deal clears regulatory approval, Advertising.com will maintain headquarters in Baltimore and will be reporting to AOL Media Networks president Michael Kelly. Advertising.com has more than 300 employees in offices in the U.S., U.K., France, Germany, Norway, Sweden and Denmark.

The company competes with the likes of ValueClick and 24/7 Real Media in the business of aggregating Web inventory and reselling to advertisers.