Safa Notes More Consolidation Ahead

Safa Rashtchy of Piper notes in a research report (click on the March 28 note) that the Ask/IAC deal could augur more Internet consolidation.

After ASKJ, What Is Next? The announcement of Interactive Corp.’s intention to acquire ASKJ is likely to be a catalyst for the Internet and search sector, especially given the recent misconception about weakness in search. As we have often stated, we believe a number of companies in our universe are perfect acquisition targets – perfect because they represent sectors that are on the rise, such as search, comparison shopping, lead generation, or content, and because their value can be significantly higher within a large company. We believe three key areas of value include content and search traffic, conversion technologies and comparison shopping platforms, and local search and listings platforms. Companies that are well represented in these areas include Marchex and Shopping.com, as our two favorites, as well as InfoSpace, CNET, and Homestore.

While we are not predicting the dawn of a new era of M&A activity within the Internet sector, we do believe that for the first time in many years there are distinct areas that are highly valuable for consolidation.

In short, Safa points out that high value traffic, especially search, is at a premium these days. Given that there is not a lot of search traffic available, other kinds of well understood intent, like at shopping sites, high CPM publishers, etc. are seen as attractive.