Dollars and deals multiply
The past two years have witnessed an explosion in Web merger and acquisition activity (M&A), with spending amounts skyrocketing and areas of activity shifting. Leading this trend, of course, was the $157 billion acquisition of Time Warner by America Online in the first quarter of this year. But even excluding that landmark deal, industry observer Webmergers.com reports that M&A spending from Q1 2000 eclipsed that for all of 1999. And that first quarter of 2000 tallied almost double the number of deals than were closed in all of 1998.

Advertising and IPOs fall from grace Accompanying this accelerated activity in the M&A arena in Q1 2000 has been the dramatic shift away from content-oriented models driven by advertising revenue, and toward business-to-business and other e-commerce models supported by fees and commissions. This trend seems to be driven by push-and-pull forces redirecting interests across Internet sectors.

Doubts about the advertising-revenue model are driving activity and dollars toward brighter opportunities within B2B markets. Buyers are spending most of their money acquiring line extensions to existing products, entering entirely new lines of business, and buying up enabling technologies. And as stock from many recent Internet IPOs continue to perform poorly, many startups have become more interested in becoming acquired than in going it alone with a public stock offering.

Internet enterprises still have deep pockets About 200 buyers spent $52 billion in the first quarter of 2000 to buy more than 230 properties. Using still-richly-valued stock as currency, publicly traded Internet companies continued to lead buying activity in the quarter, continuing the trend driving the last several quarters. These companies have paid the most attention to, not to mention money-, on, service businesses rather than on more traditional retail plays. Business exchanges, procurement services, and supply-chain integration services have been hot sellers in B2B sectors, while services such as online stock trading and travel bookings have been attractive on the consumer side.

Healtheon/WebMD was particularly active in Q1 2000, spending nearly $8 billion in the health-care services marketplace. (See our market research covering the health care industry). Trailing the Internet buyers were telecommunications plays, with Telecom Italia's activity accounting for much of the sector's 21% of all spending.

While Webmergers predicts that M&A activity will continue to be strong through the end of 2000, they predict that the pace may slow a bit as Internet-company stock valuations cool in the coming quarters.

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