Subject: Oct2000 M&A Activity Escalates brought to you by
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October 1, 2000 *4,100 subscribers* Volume 2, Issue 10 Online: 
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Mergers and acquisitions:

Private, public, traditional and newly created corporate venture capital funds will increase the pace of Internet mergers and acquisitions. We have continued to watch "'s" snapping up physical real estate, as well as larger firms buying content sites, and finally mega mergers representing the convergence of telecommunications and entertainment. In addition to technology and market share as reasons for acquisition, companies are being acquired for their technical and managerial employee base.

Buyers of web properties spent $6.4 billion in 1998 and roughly $47 billion in 1999, for a total of $53.4 billion over the two-year period. Dollar spending increased 700% from 1998 to 1999, while the total number of deals tripled from 140 in 1998 to 450 in 1999. Traditional companies have remained on the sidelines while Internet acquirers accounted for more than 70% of the spending during the two-year period. However, merger and acquisition spending by Internet portals declined significantly as a percentage of all such activity in 1999.

The first major signs of industry consolidation appeared in the second half of 1999. Buyers have steadily increased their spending in vertical markets such as investment & finance and health, with Healtheon's acquisition of WebMD one of the more notable. The value of America Online's acquisition of Time Warner was more than three times the total 1998-1999 merger and acquisition spending. Discounting the Time Warner deal, predicts that Web mergers and acquisitions will reach $250 billion in 2000.

Surpassing any previous quarterly or even yearly total, Web merger and acquisition activity in the first quarter of 2000 reached an astronomical $212 billion. Excluding the $157 billion pending purchase of Time Warner by AOL, Q1 2000 rose 17 percent over the total for all of 1999. Including the AOL-Time Warner deal, the quarter's increase over last year's total is a whopping 448 percent.

Driven by B2B companies, e-commerce deals led first-quarter activity with $41 billion, or four times Q4 1999's e-commerce total of $11 billion. In Q1 2000, $12 billion was spent on B2B exchanges or supply-chain management firms, and twice that amount went into e-commerce service companies, including VeriSign's $20 billion purchase of Network Solutions. Content-related deals took second place, with a total of $12.5 billion.

Ninety percent of Q1 2000 acquiring firms were Internet companies, with the health sector most prominent among the $1 billion deals, as Healtheon/WebMD and Neoforma acquiring six firms for $13.5 billion. Health-related acquisitions accounted for half of the top 20 deals. Mergers and acquisitions also dominated the telecommunications field, especially the long haul Internet providers. WorldCom, Sprint, GTE and Cable & Wireless were all involved in regulatory affairs related to proposed acquisitions. Today, the mergers of Bell Atlantic and GTE, and of MCI and Sprint add further to the concerns by AT&T and others that two or three large carriers could dominate the Internet backbone, both domestically and later globally. France Telecom said it will buy Orange from Vodafone AirTouch for 26.9 billion pounds ($40.36 billion) and combine the U.K. wireless company with its other mobile units by early next year.

Web Merger and Acquisition activity by Internet Category ($M):
Category198819992000 Q1
Distance Learning67238112

NTT in Japan recently purchased Verio, a network of ISPs and the largest Web hosting firm in the United States, with 300,000 hosted domains. Verio grew from its purchases of Highway and Best Internet, along with roughly 50 Tier-2 and Tier-1 ISPs. NTT Communications, the international unit of Japan's Nippon Telegraph & Telephone, will merge Verio's U.S. Web site hosting services, data center facilities and other application hosting services with NTT's own Internet Protocol-based network services in the Asia-Pacific region.

Key acquisitions have also been made by CMGI, whose business model is to purchase companies whose core competency adds value to CMGI's portfolio of firms, often interlinked as ASPs or BSPs, and hosted in CMGI's data centers. CMGI purchased AdForce in September 1999 and Flycast in March 2000. CMGI also owns the Adsmart Network, with the reach and power to conduct network ad serving.

Some of the consolidation in this space has occurred in the past nine months, and this sector vertical remains very competitive. "Focusing on ROI is important, but the companies that only focus on a piece of the solution will likely be absorbed by the companies that do more, or they will just go away." This quote was made by Chuck Berger, CEO of ad serving company AdForce, now the latest on the acquisition roster:

  • AppNet acquiresi33 Communicationsin January
  • Adsmart acquires2CAN Media in February
  • Doubleclick acquires Net Gravaity
  • Straight Up Software dissolves
  • Avenue A is also acting as broker for creative services and a deal doctor
  • AdKnowledge adds deep ad campaign analysis to its offering
  • Flycast Communications begins to develop an email network

Coming from relative obscurity, the Internet Venture firm CMGI has become one of the dominant forces in the web business. With ownership of Lycos (LCOS), and recent high publicity acquisitions of AltaVista, AdForce, and Flycast, CMGI has grown beyond being an incubator of Internet companies, and now uses integration to maximize value of its acquisitions. The latest Flycast acquisition is strategic for CMGI in that Flycast will complement the existing network of online advertising and marketing properties with full services for both online advertisers and web publishers.

In wireless news, has made strategic acquisitions to quickly add functionality to its e-commerce offerings. agreed to acquire the WAP (wireless application protocol) assets and technology of Northern Ireland-based software developer Apion. The acquisition was designed to help U.S.-based, which makes microbrowsers for smart phones and other connected handheld devices, accelerate its business in Europe.'s multiple acquisitions (Paragon, OneBox, @Motion, and Apion) combine to create a complete package of technology integrated with's browser/server product suite.

WebMD and Healtheon, which now process 2 billion healthcare transactions annually, have continued to make acquisitions. Healtheon/WebMD assimilated Medcast and their Networks Internet Broadcast News Center, which delivers a daily broadcast to the desktops of physicians to enhance their ability keep current and connected with what's going on in medicine.

New acquisitions for new business models:

Webmerger's research suggests that some of the highest merger and acquisition price premiums will go to applications that act like content: they provide services to customers and expose users to advertising or e-commerce messages. This new business model has been named "apptent", to mean the merging of application and content, similar to Forrester's transactive content, and the newly emerging field of contextual commerce. NBC Internet Inc. (NBCI) bought Flyswat Inc., a San Francisco-based firm, to help NBCi diffuse its content far beyond its existing web sites, as well as to provide more sell-through for its current e-commerce partners., a provider of user-ranked e-commerce referrals, acquired, whose "browser companion" allows web users at the point of purchase to receive merchant ratings, comparison shopping information and other content about the merchant in question.

In the new world, M&A activity is a key growth opportunity and will continue to accelerate in the next couple of years.

Company URLs

America Online / Time Warner- /

VeriSign / Network Solutions - /

Healtheon / WebMD - /

Medcast -

First E-group -

Neoforma / Eclipsys - / / - /

Paragon / Apion - /

MedicaLogic / Medscape - /

VerticalNet / Tradeum - /

CMGI / - /

Medicalogic / Total eMed -

Cahners Business Info. / CMD Group - /

NBC Internet / - /

E-Trade / Card Capture Service - / AuctionRover - / / - /

NTT / Verio - /

Webmergers -


Sprint - -

Geocities -

Lycos -

AltaVista -

AdForce -

DoubleClick / NetGravity -

Let me leave you with a few of my favorite quotes this month:

The main reasons for M & A to happen have been the companies' trend into focus and core competence. One more reason that could be added to the list is that companies today want to eliminate competition that is unjustified with the results got on spending time and effort and hence tend to acquire these competiting firms so as to strengthen their stand. The less mortal-infant companies budge to this under pressure.
(L. Suresh, Chennai, Tamil Nadu, India)

I expect the current M&A activity to continue through the next12 months. There are still a lot of non-sustainable companies out there that received significant funding last year and haven't blown through it yet. Also, a number of "late-comer" investment groups are still being formed. Their initial desire, no doubt, was to cash in on the dot-com bandwagon. But, too late for that, I expect they will support funding for M&A's by some of the more viable entities looking to expand.
(P.N., Milpitas, Silicon Valley, CA)


I hope you enjoy this eZine.

See you in cyberspace,

Mitchell Levy

Executive Producer, <>
President, <>
Founder and Coordinator, SJSU-PD ECM Certificate Program <>
Chair, ECM Symposium (Oct 4-5, 2000) <>

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