Shares of Salary.com (Nasdaq: SLRY) -- a small provider of human resources applications on the cloud -- soared 43% yesterday, after agreeing to be acquired by larger rival Kenexa (Nasdaq: KNXA).
The market seems to like the small $80 million deal, since shares of Kenexa also closed sharply higher on the news. It's not every day that you see both acquirer and acquired rallying on buyout news.
Investors should probably get used to this. The next few months will likely find more dot-coms subjecting to acquisitions, if the premiums are rich enough.
Think about it. The three leading search engines have billions -- if not tens of billions -- in cash and marketable securities. That money is rotting away on the balance sheet, earning a pittance in interest income.
If a small online deal can help boost a blue chip's profile in a promising niche, why not do a little shopping? Here are four candidates ripe for a buyout.
Ancestry.com (Nasdaq: ACOM)
Genealogy has gone primetime. After a successful first season of NBC's Who Do You Think You Are?, the network is again hooking up with Ancestry.com to dig deep into the lineage of curious celebrities.
Ancestry.com runs the Internet's leading genealogy service, with 1.3 million subscribers paying an average of $18 a month to flesh out their family trees. The site's subscriber count has climbed 32% over the past year. Given the true scalability of its model, earnings are growing faster than Ancestry.com's top-line spurts.
Ancestry.com bumped its guidance higher after this summer's second-quarter report. The favorable trend means that the company won't sell itself cheap, but for the right price, even a genealogy pro like Ancestry.com couldn't say no to an opportune corporate marriage.
The Knot (Nasdaq: KNOT)
The Knot is packing quite the dowry, since the $124 million in cash on its debt-free balance sheet represents half of its current market cap.
The bad news for the leading wedding-planning site is that its fiscal performance is nothing to throw a bouquet about. Revenue inched up a mere 4% in its latest quarter, bogged down by a sharp decline in its Web-based bridal registry business. Profitability also slipped during the period.
A potential catalyst for a return to growth may be the Groupon-esque group-buying deals The Knot announced last month for both TheKnot.com and WeddingChannel.com. Offering up local and national deals in bulk can be pretty lucrative for this lead-generator.
However that initiative pans out, The Knot's ability to attract a free-spending audience has to be gold for the three leading search engines, which would love to populate The Knot's magnetic real estate with targeted ads.
VirnetX (AMEX: VHC)
VirnetX was a largely forgettable player in Internet security software, until it emerged victorious in a patent dispute with the world's largest software company. Microsoft (Nasdaq: MSFT) wound up inking a nine-figure licensing deal, resulting in a monster second quarter for VirnetX, and a chunky one-time dividend distribution for its shareholders.
VirnetX is rich in patents, and it's not afraid to get litigious. Among its four dozen patents, VirnetX is throwing legal fisticuffs at even more giants over its smartphone data encryption.
I'm no legal eagle. I can't handicap proceedings. However, I do know that companies that are patent-rich but product-poor make ideal buyout candidates for larger companies that would rather avoid getting caught on the long side of such legal wrangling.
LoopNet (Nasdaq: LOOP)
The storm appears to have passed at LoopNet. Revenue, earnings, and premium subscribers have stabilized.
As the leading online marketplace for commercial real estate, that's about as good as investors could expect. LoopNet's ability to remain profitable during the recession should also comfort its investors.
LoopNet is a niche leader that will come back into favor eventually. An opportunistic buyer may as well strike now, while the company is bottoming out. When the economy bounces back, commercial real estate will follow suit, making LoopNet an intriguing -- and proven -- target.
Your turn! Who do you think will be the next dot-com to be bought out? Share your matches in the comment box below.
Microsoft is a Motley Fool Inside Value selection. The Knot and LoopNet are Motley Fool Rule Breakers recommendations. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.
Longtime Fool contributor Rick Munarriz checked his barometer. Yep, love is in the air. He does not own shares in any of the stocks 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.
