The Ultimate Guide to Internet Deals

Because Nussey is buying not hard assets, such as a factory, or even intellectual capital, such as a patent, but rather groups of people who know how to build things on the Web, his top concern in evaluating a deal is the human dimension. "We spend at least as much time looking at the cultural fit as we spend reviewing the books," he says. "If we discover reasons why our culture and the other company's culture wouldn't mesh, we break off discussions."

When deals do go forward, iXL makes sure that all of the acquired company's stockholders have an incentive to stay on board: Selling your company to iXL is not an exit strategy. Shareholders are paid with iXL stock (which is not yet publicly traded -- although iXL did recently register for an IPO). "The only people who will take our deal are those who want to be with us over the long term," says Nussey. "We hope to attract people who love their work, but who want to be part of a bigger company and have a bigger impact."

Since iXL aims with every deal to gain a fresh infusion of top-notch talent, it also works hard to make sure that rank-and-file people don't jump ship. "If you have a conquest mentality, you'll fail," says Dave Clauson, 44, iXL's executive vice president of worldwide marketing. Executives from iXL headquarters spend as long as three months working on-site with acquired companies. "One of our objectives is to ascertain how we can add immediate value. What is this company struggling with? What is it challenged by? Maybe there are technology problems that we can help resolve, or new-client meetings that we can help with. We try to generate early momentum by fixing some things and winning new business. That eliminates a lot of anxiety."

IXL also holds monthly summits that bring together staff from each of its 14 U.S. and 5 European offices. One summit might bring together all iXL employees who are responsible for recruitment. Another might focus on helping salespeople share selling strategies. A third might serve as a conclave for creatives. Each summit is held in a city where iXL has operations. "Most companies underinvest in knowledge transfer and in culture and emotional connection," says Clauson. "But that kind of investment is part of our battle to attract and retain the best people."

So far, iXL is winning that battle. Of the roughly 100 senior executives who came to iXL from acquired companies, only 2 have quit. "We've become a sort of magnet for people in this industry," says Nussey. "We're on the map now. Because of our reputation, we're being approached day and night, and our ability to acquire good people is increasing exponentially."

IV. Dealing Your Way Back from the Brink

Companies that live by the deal can also die by the deal. Novell Inc., the once-thriving network-software company based in Provo, Utah, almost killed itself after signing a barrage of bad deals. At its high point, Novell controlled more than 70% of the market for networking software, and its leaders believed that they were building a credible competitor to Microsoft. So Novell embarked on an acquisition binge, buying 17 companies (including WordPerfect) in the span of a little more than two years. But the acquired companies diluted Novell's strategy, which had focused exclusively on computer networking. Those companies also proved hard to integrate into Novell's culture.

"I can't think of a single acquisition in which the relationships really worked," admits Christopher Stone, 41, now Novell's senior vice president of corporate strategic development. "The revenues of the company shrank from $2.5 billion to $1.1 billion, and we wound up selling off most of the companies we had acquired."

For a while, Novell looked like buyout bait itself. Then it sold off WordPerfect, installed a new CEO -- and changed its deal-making philosophy. Forget gobbling up disparate companies and trying to become a Microsoft-sized behemoth. Novell's deals now focus on building a product line around Novell Directory Services (NDS), which Stone calls "411 for the Internet." NDS gives system administrators additional information about their corporate networks; it lets them identify and correct problems from any terminal connected to the Net; and it allows them to permit or deny users access to sensitive documents -- a feature that helps to enable secure commercial transactions. For such a directory to have real value, it has to be used by all Internet-service providers, and it has to be built into the switches that control Internet traffic. "The directory has to be ubiquitous," says Stone. And making it ubiquitous means lots of deal making.

For example, Stone put together a deal with Lucent Technologies, one of the world's leading makers of switching equipment. Last October, Lucent announced that, starting this year, it would include NDS with its own software. Wall Street and the media paid attention, and a flurry of deals with other top-tier players followed: Cisco Systems, Nortel Networks, Tivoli Systems. "One of the rules of Internet deal making," says Stone, "is that if you get the big fish first, everyone else falls in line."