- Feb 15 06:36 08:34 FPJ CMGI; A Four-Legged Global Guerrilla; Strong Buy
*** U.S. Bancorp Piper Jaffray *** U.S. Bancorp Piper Jaffray ***CMGI, Inc.
(CMGI - 115 1/2) February 15, 2000
Safa Rashtchy, 612-342-8570, srashtchy@pjc.com, Bobby Rakhit, 612-342-6409,
srakhit@pjc.com
A Four-Legged Global Guerrilla: Acquisition Of Tallan Catapults CMGI Solutions To A $150 Million Business Unit, Completing The Four Legs Of The Operating Companies; Watch For Major Global Expansion And Upcoming Partnership Announcements; Reiterating Strong Buy Rating
Rating: Strong Buy, Aggressive (#)
Highlights
--On February 14, CMGI announced the acquisition of Tallan corporation, a private software services company, for $920 million in cash and stocks. Tallan, which recently filed an S1 application for an IPO, had grown its revenue base from $13 million in 1997, to $23 million in 1998, and $53 in 1999. We believe this is an excellent match that we expected from CMGI to complete its newly created CMGI Solutions division. The division, now set for an IPO in Q2, will have a combined projected revenues of over $150 million in 2000.
--CMGI solution, with Ron Speers as the CEO, has already grown to about 200 people and we had initial run rates of $14 million per year. The division is the culmination of demand by CMGI customers to offer a "solution" approach that combines CMGI's content, marketing, and infrastructure with some custom Web development, to create complete e-business solutions for Global 1000. We estimate that the Company's contract sizes are typically in the range of $3 million-$6 million with a strategy of increasing the contract size as the Company expands.
--Unlike other e-business solution companies, CMGI's customers come directly to the Company or through its CMGI affiliates (such as Enagage)
as well as through it strong partnership with Compaq. As such, we do not expect an acquisition of a consulting arm but we expect an announcement in the next few weeks of major partnership with one or more of big players in the consulting field.
--CMGI solutions will now aggressively expand in the international markets.
We also believe that the Company will make at least one more acquisition, possibly in the areas of interactive design. We believe that the Company could well exceed the stated $150 million in revenues in 2000 as we expect the current client count of 25 to double by the year end. Our initial estimates point to well north of $200 million, with the combined company.
We expect CMGI solutions to file for an IPO soon with a public offering in Q2.
--Investment Conclusion. This is the completion of the four legs of CMGI, which is now ready to march into the global expansion. We reiterate our Strong Buy rating. |
