Snipping at Those Coattails

Friday's $6 billion proposed buyout of aQuantive (NASDAQ:AQNT) was a pretty sweet deal for Rule Breakers subscribers. Tim Beyers recommended the stock to readers of the growth stock service several months ago when it was trading in the $20s. The $66.50 all-cash takeout price will make the forced exit strategy easy to swallow.

The party doesn't end there, though. Investors are opportunists, practically by definition. Those who missed out on aQuantive's run began snapping up related companies. Just check out some of Friday's biggest winners.

The six companies aren't carbon copies of aQuantive. Omniture and Visual Sciences excel in website analytics. ValueClick, Think, MIVA, and Aptimus run online advertising networks. But they all share the same goal of aQuantive: giving clients an edge in generating leads in cyberspace.

It's a good place to be, apparently. Over the past few weeks, we've seen fellow e-commerce enablers DoubleClick, 24/7 Real Media, and Right Media load up the bases as buyout bait before aQuantive's grand slam.

The madness to the method
The logic in Friday's speculation appears sound at first. Four significant industry buyouts can easily become five. Rivals acquired at a premium prop up the perceived value of the sector as multiples expand.

However, there comes a point where logic has a head-on collision with a streetcar named reality. Or, to channel the market wisdom of Fall Out Boy, we can always sing, "Bandwagon's full, please catch another."

See, there are two factors to consider here. The first is that the companies that are left behind may not be very good. Aptimus and MIVA aren't profitable at the moment. ValueClick became the subject of an FTC inquiry last week. Visual Sciences and Think are growing quickly and trading at reasonable forward profit multiples, but the companies may be too small to matter materially to gargantuan suitors.

That's the second factor to weigh. All three of the largest search engines got in on the beefy sector purchases over the past month. They're unlikely to belly up to the bar anytime soon, as they all have their prize catches to consume.

Thou shalt not abandon all thy hope
There are other potential buyers out there. Internet companies that don't want to be left too far behind or the perpetually hungry private equity groups may come in for a nibble. But what's the fun in staying at a party after all of the big names have paired up and moved on?

Don't get me wrong, here. As a member of the Rule Breakers analyst team, I love seeing the kick that aQuantive gave to our scorecard. As a coattails crasher, I saw my score in Motley Fool CAPS shoot up 174 points on Friday, thanks to outperform calls on ValueClick, aQuantive, and Think Partnership.

Optimists can also bring back Fall Out Boy for an inspirational second opinion. In the song I quoted from earlier, the band also pretentiously sings that this isn't a scene but an arms race. And yes, the cyberspace land grab isn't going to end just because the three heavies are full.

This doesn't have to end badly, even if the bandwagon is starting to get pretty heavy. Investors have been hopping on with every passing buyout, bidding up the remaining players even higher with every passing handshake.

The irony is that the act of bidding up fringe players comes just as the sector consolidation well is running dry of sugar daddies to prime it with acquisitions at lofty multiples. So choose your coattails carefully. Buy only companies that you wouldn't mind owning as stand-alone entities, and at attractive prices.

Riding coattails can be a lucrative sport, but don't forget the protective gear.

aQuantive was recommended to Rule Breakers subscribers five months ago at $25.14 per share. If you want to learn why it made the cut -- and read up on other potential growth stock winners -- sign up for a 30-day trial subscription offer today.

Longtime Fool contributor Rick Munarriz crashed proms, parties and weddings when he was young, so he doesn't have a problem crashing a coattail party. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.