M&A

Value of Internet Mergers Rose in February

Deals involving Net companies were worth almost $6 billion.
Craig SchneiderMarch 20, 2001

Dot coms may be going up in smoke, but the number of Internet companies that were involved in mergers in last month was more than twice the number that failed, according to a report released by Webmergers.com on Tuesday.

Acquiring companies spent about $5.8 billion to acquire 130 Internet firms in February, far outstripping the 52 Web-related companies that shut down, the San Francisco-based merger tracker reports. February’s activity was slightly ahead of January, when buyers spent about $5.3 billion on 112 deals.

German telecom giant Siemens’ purchase of digital subscriber line (DSL) provider Efficient Networks for $1.5 billion was the largest deal of the month.

The Internet infrastructure sector continues to garner the lion’s share of merger dollars, with over $4.5 billion for 46 deals. Internet destinations, including content Web sites and E-tailers, accounted for $945 million in 57 transactions.

“There was really very little surprise,” says Tim Miller, President of Webmergers, Inc. “It was pretty much the same pattern.” Infrastructure deals also set the pace for Internet merger activity in January.

Webmergers defines sector activity by the target company and it measures the market by the announced deal value. In private deals, where no value has been announced, it estimates the value by comparing them to similar acquisitions.

The shocker is looking at how far content sites and E-tailers have fallen from a year ago. In February 2000, buyers in the sector alone spent $20 billion to acquire 89 Web sites. WebMD’s purchase of Medical Manager Corp., CareInsite, Inc., and OnHealth Network Corp. for $5.5 billion, and Telecom Italia’s $10 billion acquisition of Seat-Pagine Gialle SpA accounted for about 75 percent of that amount.

The Internet service provider sector showed a large drop, falling to five deals worth some $80 million in February, down from 8 deals and $825 million in January.

Some sectors did show increased activity last month. Internet services, including consultants, Web hosters, and application service providers, accounted for 22 deals valued at $258 million. Both figures were double the amounts in January.

The merger activity is a sign that there are willing buyers, but this is hardly a healthy time for the Internet economy. At least 327 Internet companies have shut down since January of 2000, half of them within the last three months, Webmergers reports.

Will the active merger market lift the Internet out of its doldrums?

The jury’s still out, Miller says. “The [Internet company] shut down activity is slowing down a bit, and merger activity is pretty much holding steady,” he says. However, given the market, he would not be surprised to see mergers tail off in March. “At some point everyone just gets paralyzed,” Miller adds.

To read the full report, click here.