Regular readers of StockTracker Daily know all about the record number
of Internet IPOs launched this year, especially in the past three
months.
Venture capital investments in Internet start-ups also are increasing at
an unprecedented rate, according to the latest quarterly surveys from
PricewaterhouseCoopers and VentureOne.
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Together these trends have dramatically expanded the Internet universe
in just a few short years, giving investors an almost overwhelming range
of options.
But another trend is hard at work to restore order to the chaos. A new
study by Web start-up consulting form New Media Resources shows that in
the first half of this year, merger and acquisitions activity by Web
media companies increased 22 times over the first six months of '98.
Acquiring companies shelled out $33.4 billion in 169 separate
transactions in the first two quarters of 1999, compared to $1.5
billion for 56 deals in the first half of last year.
While we all know consolidation is gripping the Internet industry, these
astonishing figures bear witness to comments Wednesday from Merrill
Lynch analyst Henry Blodget, who said three quarters of all existing
Internet companies will be acquired or fail.
Particularly vulnerable, Blodgett said, are the companies "that are
third, fourth or fifth in their particular market segments."
In Wednesday's morning report on the rumor of a Yahoo! buyout of
Excite@Home, I made an almost identical observation: "Sooner or later
there will be convergence in this space." Better to join forces with
another company and run a strong second than go it alone as a distant
runner-up. After all, in the end the market rewards sector leaders, not
the plucky fourth- and fifth-place contenders."
Five companies have accounted for 76% of all Web M&A activity in the
past 18 months. The biggest shark has been Yahoo!, with five deals
totaling $10.5 billion (26% of the dollar amount in the past year and a
half). At Home place second with just one buyout, when it bought portal
Excite for $6.7 billion.
The favorite target among acquirers in the first half of the year was
mainstream content sites, which accounted for more than 50% of total
spending. Community and e-commerce Web sites also were popular, eachcomprising 15% of total spending.
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