June 7, 2007, 12:00 AM

E-commerce growth will lead to more mergers and acquisitions

Among the hottest companies will be those involved in mobile commerce, online advertising tools and user-generated content, a Citigroup analyst says.

With online retail sales growing much faster than offline sales, Internet retailing and technology will be hot categories for merger and acquisition activity in the next few years, says Citigroup analyst Mark S. Mahaney. And among the hottest companies will be those involved in mobile commerce, online advertising tools and user-generated content.

“The most intriguing area and where we will see the most activity is the mobile internet over the next 12 months,” Mahaney told attendees during an educational session Wednesday at the Internet Retailer Conference & Exhibition in San Jose. “This is clearly where there’s going to be growth and m&a; activity.”

He also highlighted companies that provide tools for online content and user-generated content as attractive acquisition targets. And with major U.S. e-commerce players looking abroad for faster growth over the next few years, companies that establish an international presence will make themselves more attractive to potential buyers.

Mahaney says the macro trends remain positive for online retailing and advertising. Citigroup projects U.S. online retail sales will grow 18.5% this year to $127.1 billion, and grow by 16.5% and 15.0% in 2008 and 2009, respectively. Those growth rates are three to four times higher than Citigroup’s projection for overall retail sales. Online advertising, Citigroup projects, will grow by 25%, 22% and 19% from 2007 through 2009, six to eight times faster than overall advertising growth.

One other potential growth area he highlighted was online local real estate listings. He says the Internet has largely supplanted newspapers for automotive, help wanted and personal ads, but has yet to break through in local real estate listings. “If someone can come up with a real estate solution,” he says, “there might be m&a; activity there.”

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