Top 10 Internet Acquisitions

HipMojo, a blog I've found myself reading a lot lately, has their list of the top 10 Internet acquisitions of all time (eleven actually, I love that).

Here is the list, but you really should click thru and read the color commentary.

#11 - Honorary Mention: Yahoo! acquires Yoyodyne in 1998 for $39 Million

#10 - aQuantive acquires Razorfish for $160M in June 2004

#9 - Microsoft acquires Hotmail for $400M in 1998

#8 - Ask Jeeves acquires Interactive Search Holdings for $343M in March 2004

#7 - eBay acquires Paypal for $1.5B in 2002

#6 - AOL Time Warner acquires Advertising.com for $435M in June 2004

#5 - Yahoo! acquires Inktomi for $235M in December, 2002

#4 - Yahoo! acquires Overture for $1.63B in July, 2003

#3 - Google acquires Sprinks (for basically nothing) in October 2003

#2 - New York Times acquires About.com for $410M in February, 2005

#1 - News Corporation acquires MySpace-parent Intermix for $580M in May 2005

I am not going to critique this list. It's pretty good. I might have added a few and subtracted a few and rearranged the order, but it's certainly a list of very good deals that have worked.

Three things I'd point out about this list.

1 - Six of the eleven deals were done in the range of $235mm to $500mm with the sweet spot in the $400mm range. I don't know if this means anything. It's just interesting to note.

2 - Seven of the eleven deals were done in the "Internet doldrums" of 2001-2004. It will always be true that the best time to buy is when nobody else is buying.

3 - Seven of the elven deals were done by "Internet companies" meaning they didn't exist before 1995. Two were done by traditional media companies, NY Times and News Corp. One by a software company, Microsoft. And one by a hybird, AOL Time Warner. I don't know whether this ratio will continue as traditional media companies and technology companies start buying Internet companies more agressively.

Lists like this are interesting to me because it's always looking at what has worked and try to figure out what you can learn from it. What do you take away from this list?

Comments

[Erik Schwartz]

Yahoo! acquires classicgames.com for $1 million cash. It becomes Yahoo! Games 6 weeks later.

Not a real win from the investor side, but the ROI for Y! is impressive.

[Emre Sokullu]

about.com; is it really a brilliant acquisition?

And yes, this is not a ROI list, I'd prefer to see a ROI list. For instance, despite its high price, Inktomi was undoubtedly a good acquisition however del.icio.us, on the other hand, was very cheap but still can empower Yahoo's search results almost as much as Inktomi algorithms do, with the power of masses.

[PRoales]

What do you take away from this list?

What I take away from this is that the thought leaders in the field are still not looking at hard emperical data, but instead looking at anecdotal overviews, when forming opinions...

[tomo]

"What do you take away from this list?"

- all of these acquisitions were, at the time of the transaction, questionnable and expensive in terms of the market reaction (more fuel to the fire on why collective/group reasoning shouldn't be viewed as an authoritative point of view)

- all of these were likely done with a visionary outloook....meaning they didn't necessarily have an immediate revenue impact to the bottom line but were synergystic or complimentary in nature and overtime would ad value that is hopefully greater than the associated purchase price.

- makes me wonder, if companies like msft or orcl or hp or appl have spent the same amount of money on aquisitions over the same period of time it could really stiffled the innovation that has come out of these companies. Is this happening now at google? definitely appears to be.

[ashkan karbasfrooshan]

Fred, thanks for the kind words. But do criticize... that's [half of] the beauty of lists.

Tom,

Regarding your second comment:

Actually, in all fairness, #2, 4, 6, 7, 8, 10 and 11 all contributed to revenues and profits. #1, while not directly adding revenue did help FIM land a $900M deal with Google, and FIM then sold non-MySpace assets back to Intermix CEO Richard Rosenblatt, so the net cost of acquiring MySpace was even less than $580M...

If you read the actual full article, I listed some of the post-deal boost to earnings: Paypal, About.com, aQuantive, Advertising.com, ISH and Overture all had major financial impacts. There are some interesting comments on the original post, one by a former Paypal employee is particularly insightful.

All to say, we certainly tried to look at financial impact and not merely at intangibles, otherwise MSFT acquiring Groove and landing Ray Ozzie would make the list, for example.

Regarding your third comment: I think MSFT set the standard for acquiring and integrating startups, Google and Y! simply have borrowed from MSFT's page.

I'm not sure if it's stifling competition, if anything, it's entrepreneurs recognizing that it's easier to create something new on the outside than on the inside... and, the startups are eager to sell (to the chagrin of the VCs who want to scale some more, perhaps ;)

Ash

[tomo]

Thanks, Ash.

Poor choice of words on my part... didn't mean to insinuate that pypl, myspace and overture didn't have an immediate impact to the respective results of their new parents but more to bring to light the notion that acquisitions don't always come to fruition for the reasons or at the price which may seem logical but can be totally illogical from a financial point of view but make perfect sense when you take a step back and see how the pieces of the puzzle fit together....ala gootube

[Steve]

couple other deals i'd include

AOL acquires ICQ (very visionary view of where the web was, and was headed)

Yahoo acquires ViaWeb (e-commerce for every/any merchant meets portal-power serach and distribution -- well before eBay was eBay)

excite/@home merger -- textbook case of a great strategy, great partners and owners, horrible result

[charlie crystle]

Skype?

[RBA]

What do I take away? If I have to go by this list, I'd say that "Yahoo is he smartest company out there when it comes to acquisitions". It's mentioned three times while all others only show up once.

[yahooman]

yoyodyne didn't do much for yahoo - it was a horrible $40MM spent. the group bounced around for a few years b/c no one knew what to do w/ it.

viaweb was definitely the better acquisition for a similar price. it resulted in 2 very profitable businesses for yahoo - small business & shopping.

[fred]

Valueclick acquired COMMISSION JUNCTION for their cash value in 2001

[tomo]

This is a good one, Equinix boughtout Abovenet on a $100MM datacenter by signing a long term lease directly with abovenet's frmr landlord at market rates which were at or below what abovenet was paying. I understand this doesn't count for the top 10 acquisitions but there have been some screaming 'deals' done in this space by Equinix, 365Main and DRT. The well has run dry and opportunities to pick up these type of assets for pennies on the dollar are history and probably won't present themselves again...

[gonzalo arzuaga]

Interesting. A few days ago James Nicholson published "Ten Worst Internet Acquisitions Ever" and Hotmail and Skype acquisitions are there, but considered not only as bad, but as "worst ever." Different points of view, different returns i guess.

http://internet.seekingalpha.com/article/21041

PS: Fred, me too, i found myself more and more reading HipMojo.

[James Nicholson]

Fred,

FYI, the HipMojo post was a response to a blog posting I made a week ago that got picked up by Seeking Alpha on the 10 Worst Internet Acquisitions of All Time (http://bell-wether.blogspot.com/2006/11/top-10-worst-internet-acquisitions.html).

Unfortunately I found it much easier to come up with a Top 10 worst list than a Top 10 Best List. ;-)

Seems that for every good Internet acquisition there's been 5 bad ones.

I agree that the sweet spot for good acquisitions has been in the $200-$500 million range. Maybe because these companies have reached a certain size where it's easier to see how they will fit into the acquiring company's strategy, but not so huge that unrealistic expectations are created.

[Dustin]

Although, AOL isn't doing so hot these days, its acquisition of Netscape was pretty important in the entire scope of things.