Model Management: Distressed dot-coms

This week's column from the team at business management portal FTdynamo asks that most difficult of new economy questions - what value a failed dot-com?

The dot-com market downturn has not been bad news for everyone. It brings along a new breed of investors - known as distressed investors - ready to pick over the remains of dot-coms and give some value to companies feeling the strain of the downturn. Old economy firms have also been taking advantage - it means they can snap up dot-com assets at a bargain basement price and develop an ebusiness division fast. But how real will the assets of dot-coms or internet infrastructure companies prove to be in the long-term, and with the number of high-tech firms going bust or looking for buyers, why aren't distressed investors falling over themselves to rescue these companies? Only recently, telecommunications company Nortel earned itself a place in history when it declared a world record quarterly loss of $19.2bn. The company announced it was writing off $12bn of intangible assets which all relate to Nortel's recent acquisitions of start-up companies involved in internet infrastructure, including Alteon, Qtera and Xros. Most dot-coms and high technology firms that were once earmarked for multi-million dollar flotations and that have since been acquired (or quietly disappeared) have turned out, in the end, to have precious few real assets. Most companies' biggest assets are their databases of customers - but what lasting value is there in customers who have not used the service long enough to become loyal? Other assets include groundbreaking technology, such as voice-over-internet protocol and broadband, but these companies were struggling in the first place because the technology was too advanced for rapid take-up in today's marketplace. Another drawback to acquiring a dot-com - or a company which provides internet solutions - is the lack of a solid history upon which to base your decision. Unlike old economy companies, the fortunes of dot-coms and young technology companies are determined on a market that is rapidly changing, and which continues to do so. Little wonder, then, that investors and old economy companies aren't in too much of a hurry to acquire dot-coms in trouble or young technology companies in the hope of unlocking hidden value and assets. It is like acquiring a firm with virtually no tangible assets and profits, and a future that is far from certain. FTdynamo, the new management website from FT Knowledge, where the latest in business thinking is put into context and delivered to your desktop, is now live. Visit us at http://www.ftdynamo.com and register for a FREE two week trial subscription.