Engage Technologies, a US company which collects profiles of internet users, announced the purchase of two online advertising companies yesterday in a combined bid that was worth $2.9bn (£1.8bn) by mid-morning.
The acquisition of Adsmart and Flycast from CMGI, the internet investment group that owns a majority of Engage, is set to improve the group's position in the online advertising market.
Forrester Research expects this market to almost double from $3.3bn in 1999 to $6.5bn this year. Just 2% of the total US corporate advertising budget is already spent online. The merger creates a bigger online rival to Doubleclick, the established market leader in online advertising.
Investors welcomed the deal yesterday. By midday in New York, shares in Engage had risen $13 to $90, adding more than $400m to the total value of the all-share deal based on Wednesday night's closing price.
Engage will pay CMGI with 32m shares for the two companies, increasing CMGI's stake in Engage from 80% to 87%. CMGI, which holds large stakes in 60 internet companies including portal outfits AltaVista and Lycos, announced yesterday that if the acquisitions go ahead its investments in publicly listed companies will be worth more than $11bn.
David Wetherell, chairman and chief executive of CMGI, said: "Today we have begun to fulfil our larger vision for a single, highly integrated internet marketing company that represents the next generation in online marketing solutions."
The combined company is expected to help companies target specific audiences with their advertising by pooling their resources.
Adsmart has worked on more than 400 websites, while Flycast measures the effectiveness of online ads. CMGI only bought San Francisco-based Flycast last week.
Engage has compiled profiles of 35m web users based on which sites they visit.
The company has said that it does not store personal information such as credit card numbers, a privacy issue which has exercised American regulators.
Kevin O'Connor, chief executive of Doubleclick, said in New York this week that the web-based ads could be more effective than television ones.
The acquisitions, which are expected to close in the spring, pushed the market value of Engage to more than $4bn yesterday.
Paul Schaut will remain as president and chief executive of the combined company, while the respective heads of Flycast and Adsmart will join the president's office to oversee strategic operations.
