NexTag sells stake for $830M, after facing death in 2000

Private equity firm Providence Equity Partners has acquired a two-thirds stake in comparison-shopping site NexTag Inc. for about $830 million, according to the WSJ’s Kevin Delaney.

The deal values the San Mateo, Calif. Nextag at about $1.2 billion, and represents an amazingly lucrative deal for NexTag, which is just one of dozens of shopping search engines and which arguably doesn’t have any clear technology advantage compared to others.

VentureBeat has tried reaching the company over the past two days for comment, but it has not responded.

The deal, assuming it will be confirmed, also tells an emotional rags-to-riches turnaround. The company, a was almost left for dead in 2000. Facing $700,000 in debt after the Internet bubble burst in 2000, chief executive Purnendu Ojha gave his employees a two-month notice. He then hunkered down with four executives and they took pay cuts of 85 percent. They managed to save a staff of 16, down from 55, and they shed their previous model of an online auction. They instead turned to online shopping comparison search. Morgenthaler Ventures pumped $1.3 million into the company to help. Technology Crossover Ventures pumped in another $18.4 million in 2004.

Ojha is a very tough, headstrong guy. We got to know him and a few of his employees during this story written two years ago. Ojha introduced an ascetic culture that some considered extreme — many employees left. PR people were frustrated by his refusal to spend on marketing. The office was dreary — across the street from a graveyard. Ojha had learned from the excesses of the dot-com Bubble, and from the mistakes of his contemporaries. Through grit, he worked NexTag’s comparison search into the less glamorous areas, such as mortgage offerings and financial services — areas which have turned out to be very lucrative.

The company generates revenue from advertising on its site and, as the WSJ writes, by charging retailers and other service providers to direct consumers to their sites. NexTag’s Web site says more than 11 million people use its service monthly. It has been in the black almost from the beginning of its turnaround.

Under the deal, existing investors, including NexTag management and venture-capital firm Morgenthaler Ventures, will keep stakes in the company, according to the WSJ.

The size of the deal reflects the excitement in the private equity world about prospects in Internet advertising — it follows Hellman & Friedman’s home-run when it sold DoubleClick for a planned $3.1 billion to Google.