OT: (REUTERS) Internet battles driving M&A activity, report says
Internet battles driving Merger and Acqusitions
By Patricia Vowinkel
NEW YORK, July 28 (Reuters) - The value of mergers in the
global technology sector nearly doubled to a record $545
billion in the first half of 1999 as companies battled to win a
dominant position on the Internet, according to a report
released on Wednesday.
Business has been so strong that it took only six months to
shatter last year's record deal value of $488 billion,
according to a report by investment bank Broadview
International LLC.
The total number of M&A transactions in the information
technology, media and communications sector rose nearly 18
percent to 2,900 globally, the Broadview report said.
The explosion in deal value and activity comes as
information technology, media and communications companies race
against time to become the dominant player, or "gorilla," in
their Internet businesses, Broadview Chairman Paul Deninger
said in a telephone interview with Reuters on Tuesday.
Such a process used to take about 30 to 50 years outside
the technology industry, he said. In the Internet business, it
may take as little as five years, he said.
"That's why you see such a fevered pitch of activity where
you have companies like Amazon and Yahoo doing four, five, and
six M&A transactions in just the first six months of the year,"
Deninger said.
Deals by Internet portal Yahoo Inc <YHOO.O> include its
acquisition in July of Web media programmer Broadcast.com,
valued when the deal was announced at about $5 billion in
stock. In May, Yahoo acquired Web service GeoCities and
software developer Encompass Inc., a provider of Web
integration services.
Online retailer Amazon.Com <AMZN.O> in April agreed to buy
Internet auction company LiveBid.com
"They are desperately trying to increase traffic on their
sites, access to eyeballs and stickiness to their sites as
well, because what's becoming clear is that, at some point,
these companies are going to have to make money," Deninger
said.
Total deal value for North American activity in information
technology, media and communications rose nearly 47 percent to
$351.4 billion, while the number of deals climbed nearly 13
percent to 1,805.
The Internet battles drove deal value in the digital media
segment up nearly 700 percent to $36.5 billion in the first
half, from $4.6 billion in last year's first half.
The number of deals in that segment rose to 374 in the
first half from 112 in the first six months of last year.
The Internet also has influenced the strategies of
well-established companies such as Lucent Technologies Inc.
<LU.N>.
Broadview said the race to become the single-source
provider for integrated voice and data networks prompted
Lucent's $20 billion acquisition of Ascend Communications Inc.
Other top transactions included Healtheon Corp.'s <HLTH.O>
agreement to buy online medical resource WebMD in a deal valued
at the time at $10 billion. Also, ExciteAtHome Corp. <ATHM.O>
purchased Internet search and director provider Excite Inc. for
$6.7 billion in stock and Global Crossing Ltd. <GBLX.O> agreed
to buy long-distance phone company Frontier Corp <FRO.N>.
Meanwhile, European technology companies began to make
aggressive forays into North America in the first half of 1999,
as Europe attempts to catch up with the embrace of the Internet
by the United States, Broadview said.
Acquisitions of U.S. companies by Europeans rose sharply to
94 in the first half of 1999, up from 70 in the first half of
1998 and 40 in the first half of 1997, Broadview said.
The value of those transactions skyrocketed to $72.8
billion in the first half of 1999, up from $18.5 billion in
1998 and $1.8 billion in 1997.
"In the 1980s, U.S. companies went through dramatic
restructuring, the hostile deals, the raiders," Deninger said.
"At the time, this was portrayed in the press as a horrible,
nasty thing," he said.
But, he said, the United States was the only country to
undergo the process and now boasts some of the strongest
companies and one of the few healthy economies.
Many European companies are now in the midst of their own
restructurings and when seeking to buy assets, often have no
alternative but to buy emerging companies in the United States,
he said.
One example of a European buying in the United States was
French telecom group Alcatel <CGEP.PA>, which in March agreed
to buy California Internet equipment maker Xylan Corp. for $2
billion. Later in the month it agreed to buy Assured Access
Technology, a Milpitas, Calif.-based developer of remote access
solutions for the Internet Protocol market.
"People ask me all the time, when's the bubble going to
burst, and my answer is, it's got less to do with corporate
earnings in America than alternative investment opportunities
around the globe," Deninger said.
"When there's another place around the globe, that offers
the kinds of returns you can get in the United States and has
the ability to consume massive amounts of capital, it will
change. Until then, it won't," he said.
((Patricia Vowinkel 212-859-1716))
REUTERS
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