In the dot-com era, Verticalnet Inc.âs e-marketplaces came onto the b-to-b scene with a bang. Earlier this month, Verticalnet shed those same e-marketplaces with a whimper.
On July 1, Malvern, Pa.-based Verticalnet Inc. announced the sale of its Small and Medium Business Group, the companyâs group of 59 vertical e-marketplaces, to Erie, Pa.-based Corry Publishing for $2.35 million in cash, plus a potential $6.5 million more over four years, based on performance.
The acquisition price is remarkable, considering the nearly $11 billion market capitalization Verticalnet reached in 2000, just before the dot-com crash. At that point, the companyâs business model was focused almost exclusively on those e-marketplaces, and their supposedly bright future accounted for the high market cap.
Now, just two years later, Verticalnetâs strategy in unloading its e-marketplaces is clear. Its original business model didnât prove viable, and its market cap has plummeted to $19.5 million.
The divestment of the e-marketplaces generated cash from a negative cash flow business, and it allowed Verticalnet to focus on its new business model of selling enterprise software.
Corry keeping quiet
Corry Publishingâs strategy is less clear. The privately held company declined to elaborate on its plans for the e-marketplaces. "Weâre going to work on running the business," said Jim Roddy, Corryâs editorial director. Another Corry representative, who referred all questions to Verticalnetâs general counsel, said it was part of the companyâs contract with Verticalnet that it couldnât comment on the deal.
Corryâs acquisition has left some industry observers scratching their heads. "Itâs hard to make sense of it," said Seth Alpert, managing director of AdMedia Partners Inc. an investment banking firm specializing in publishing and interactive industries.
Verticalnetâs e-marketplaces were a shrinking and money-losing business. In 2000, they generated $104.5 million in revenue; in 2001 they produced $90.0 million in revenue, a decline of nearly 14%.
Pointing to the sale price of the property, Janet Suleski, senior analyst at AMR Research said, "You can see the direction [Verticalnet] expected the business to go."
Some observers theorized that Corry plans to take costs out of the business by shuttering many of the 59 e-marketplaces and keeping open only the most promising, such as Wateronline.com.
Corry, which said its annual revenues grew from less than $2 million in 1990 to more than $12 million in 2001, produces several conferences and publishes a handful of magazines and newsletters, including Business Solutions, Integrated Solutions and Mass Storage News.
Some observers speculate Corry may plan to integrate Verticalnetâs former e-marketplaces with its own www.isit.com, a site designed to help businesses answer questions about enterprise computing. The "isit" stands for integrated solutions for information technologies.
"SMB continues to have a business model that revolves around enabling suppliers to connect with buyers and allowing buyers to get access to new suppliers," said Nate Lentz, Verticalnetâs senior VP-strategy and marketing. "Corry is in trade publishing, which is traditionally an offline business, and theyâve made some forays online. I think that this is a continuation of their business modelâto be able to serve their core customers through multiple types of media, both online and offline."
Roger Krakoff, managing director of Jordan, Edmiston Group Inc., the New York-based investment bank that advised Verticalnet on the sale, said, "They like the Verticalnet business and will continue to work with it. â¦ Itâs about helping buyers and sellers come together and generating sales leads."
Verticalnetâs new focus
Verticalnet plans to focus on what it considers a growth business: collaborative supply chain software. Since 1999, Verticalnet has made several key acquisitions of b-to-b enterprise software companies, including Isadra, Tradeum and Atlas Commerce.
To help convince Wall Street of the viability of this direction, Verticalnet announced on July 1 two other financial moves in addition to the sale of its SMB unit. First, it repurchased 100% of its Series A preferred stock from investors, which had a liability of $106 million, for $5 million in cash. The move added $101 million to shareholder equity, Verticalnet said.
Second, the company approved a 1 for 10 reverse stock split, which will enable it to retain its stock listing on Nasdaq.
At $19.5 million, Verticalnetâs market cap is less than the cash and equivalents on its balance sheet, which stand at $34.0 million. But, in a report it issued after the two moves, AMR Research applauded Verticalnetâs new direction, saying, "Its applications have a great deal of value, mostly from the acquisition of Atlas Commerce."
AMR Research praised Verticalnetâs customer list, which includes Ikea, and its management team, headed by CEO Kevin McKay, who previously was CEO of SAP Americas.
"Given its ramping traction,
A-list of prospects and rapidly decreasing cash-burn rate, Verticalnet could be back on track to find its golden road," AMR Research said. Much of this optimism was linked to Verticalnetâs ability to rid itself of the SMB unit.