Microsoft paid $6.3B for aQuantive — five years later it wrote off $6.2B

In 2007, Google was taking online advertising, and Microsoft wanted a rival position. On 13 August 2007 it completed the all-cash acquisition of aQuantive, the largest independent online-ad company, for just over $6.3 billion — its largest acquisition ever, at more than double the price Google had paid for DoubleClick about a month earlier. Former employees told the press the motivation was defensive: keep aQuantive away from other suitors.

Five years later, on 2 July 2012, Microsoft's 8-K announced a non-cash charge of approximately $6.2 billion: an impairment of goodwill in its Online Services Division, 'mostly related to its 2007 aQuantive acquisition.' The filing was blunt about where the goodwill had come from — 'substantially the result of the 2007 acquisition of aQuantive' — and about why it was going: the deal 'did not accelerate growth to the degree anticipated.'

The charge landed in the fourth quarter of fiscal 2012 and turned the quarter red: Microsoft reported a net loss of $492 million, against a $5.9 billion profit in the same quarter a year earlier. Of the $6.3 billion paid for aQuantive, $6.2 billion was written off. The company's statement kept the people and the tools and conceded the rest: the business 'did not perform relative to our projections.'

Wrote off $6.2B of the $6.3B paid as goodwill in one quarter, turning it into a $492M loss, because the ad business underperformed projections.

The price was defensive: more than double what Google had just paid for DoubleClick, paid partly to keep aQuantive from other suitors. A price set by a bidding war is not set by the asset.

Goodwill is the part of the price that growth must justify. The division's goodwill was, per the filing, 'substantially the result' of aQuantive — when growth did not arrive, the accounting said so.

Former executives said Microsoft let aQuantive's ad technology languish while it poured money into search. Atlas, $160M and growing 40% a year when bought, shrank to a fraction of that revenue.

A premium price is a claim about the future; the impairment is the verdict. Microsoft paid $6.3B for aQuantive and wrote off $6.2B — the whole deal, minus rounding, conceded in a single quarter.

Microsoft stayed in online advertising, and the former aQuantive executives' verdict traveled further than the press release: maybe the strategic decision should have been search, made earlier, without a six-billion-dollar display company attached. In M&A teaching the case needs no embellishment — the purchase price and the writedown are, to within a rounding error, the same number.