B2B shares sport 600% returns
Public and private markets validate prices
By Bambi Francisco, CBS MarketWatch
Last Update: 6:11 PM ET Dec 18, 1999 Internet Daily
Net headlines
SAN FRANCISCO (CBS.MW) -- Investors who've placed bets on business-to-business plays are sitting pretty, and the gravy train has just embarked on the fast-track.
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Updated:
12/18/99 7:51:02 PM ET
Shares of companies that enable corporations to put up a Web storefront, conduct business, such as procuring products from suppliers, or firms that have incubated such companies, are stomping the overall Net averages.
Net analyst Eric Upin at BancBoston Robertson Stephens noted recently that companies in the business-to-business space are up an average of 598 percent year-to-date. In contrast, the Goldman Sachs Internet Index is up just over 100 percent. Former business-to-consumer darlings Amazon.com (AMZN: news, msgs) and EBay (EBAY: news, msgs) are up some 60 and 85 percent, respectively.
Public demand intact
The recent performance of FreeMarkets (FMKT: news, msgs) reflects the insatiable public demand for these stocks. The Pittsburgh-based company, which offers procurement auctions, saw its shares sprint ahead by 50 1/4, or 19 percent, to 315 3/4, on Friday.
After one week in the public market -- it commands a valuation of $11 billion, far greater than the $1.6 billion raised in its IPO through lead banker Goldman Sachs.
The public market isn't alone in placing rich valuations on these companies. In the private marketplace, firms are being snatched up at public-market prices. Consider Ariba's (ARBA: news, msgs) recent acquisition spree.
Private demand validates
Earlier this week, Ariba purchased Tradex Technologies for $1.9 billion in stock. With the acquisition, Tradex adds 18 customers. Since Ariba has some 100 customers, a back-of-the-envelope calculation would suggest that Ariba gave Tradex roughly what the public markets were valuing each of its own customers.
That deal followed Ariba's $400 million purchase last month of a similar but smaller firm called Trading Dynamics. After that acquisition, observers were already predicting valuations would continue to climb since the start of a consolidation phase often means successive sales are valued at higher prices.
Incubators as proxy
With the public and private markets applying rich multiples to these companies, Net incubators holding business-to-business startups are positioned well.
The Tradex sale was a big win for Internet Capital Group (ICGE: news, msgs), one of the leading Net incubators of business-to-business companies. ICG owns a fully diluted stake of 8 percent in Tradex, according to Merrill Lynch, the investment bank that brought ICG public. Upon completion of the deal, ICG's stake would be worth $150 million, up from a cost of $5 million to $10 million, according to the note.
Creating additional value for ICG has been the well-received public offerings of VerticalNet (VERT: news, msgs) and Breakaway Solutions (BWAY: news, msgs). ICG's cost base for VerticalNet and Breakaway was $14 million and $17 million, respectively, according to Merrill Lynch. Those holdings are now valued at $1.5 billion and $380 million.
"The outlook for B2B remains excellent," said Merrill Lynch Net analyst Henry Blodget. The best way to play the group is through Net incubators, such as the Wayne, Pa.-based Internet Capital Group, a company Blodget helped to bring public. Indeed, ICG does give investors the opportunity to buy into privately held hopefuls before the public market sends those values into the stratosphere. |
