Buy cheap, the saying goes, and you get cheap. In what is shaping up as a dismal year for the Internet sector, at least 450 Internet companies closed their doors during the first nine months of 2001, nearly twice as many failures as in all of 2000.¹ As valuations plunged, failing dot-coms have become acquisition targets for better-positioned companies eager to take advantage of bargain-bin prices. Investors, many of them traditional, off-line companies, have poured billions into acquiring almost 1,000 different Internet assets and properties so far this year. In comparison to the same nine-month period last year, the average dollar value of each transaction has dropped, but the total number of transactions has actually increased by about 40 percent—and the figures are projected to grow by year's end.²

But acquirers rummaging through the Internet's bargain basement should temper their enthusiasm with caution. The spectrum of options to choose from is much broader than typical M&A, and there is much less data to help sort it out. Think about how many start-ups there were in each major e-tail category alone, for example. How does a potential acquirer know it is picking the one deal that has real...