From U.S. Bancorp Piper Jaffray
08:25am EST 23-Feb-00 USBancorp Piper (Timothy M. Klein 612-342-5544) VERT
VerticalNet (VERT): Expands NECX Division With Acquisition; Strong Buy
*** U.S. Bancorp Piper Jaffray *** U.S. Bancorp Piper Jaffray ***
VerticalNet, Inc. (VERT - 196 ) February 23, 2000
Timothy M. Klein, 612-342-5544, tklein@pjc.com/Allison Y. Gage, 612-342-
6425, agage@pjc.com
Expands NECX Division With Acquisition Of R.W. Electronics, The Fifth
Largest Exchange In Electronic Components Industry For $80 Million; Move
Reinforces Aggressive Hybrid Offline/Online Growth Strategy; Maintain
Rating And Estimates
Rating: Strong Buy, Aggressive (#)
Price: $196 52-Week Range $289 9/16 - $17 3/8
FY End:December 12-Mth Price Tgt (45x FY01 Revs)$
290
Shares Out (Mil) 35.9
EPS 1999 2000E* 2001E* Market Cap (Mil) $7,036
Mar ($0.18) ($0.55) ($0.18) Avg Daily Vol (Mil) 1.435
Jun ($0.19) ($0.57) ($0.07)
Sep ($0.69) ($0.45) $0.06 Consensus FY00 EPS ($1.61)
Dec ($0.28) ($0.33) $0.20 Consensus FY01 EPS ($0.52)
FY ($1.37) ($1.90) $0.01
P/E NM NM NM Market Cap/FY00 Revenues 61x
Market Cap/FY01 Revenues 31x
Revs (Mil) 1999 2000E 2001E
Mar $1.93 $17.8 $45.8
Jun $3.55 $23.1 $52.4
Sep $5.18 $33.2 $60.3
Dec $10.09 $41.0 $69.1 Qtr End March 31, 2000
FY $20.76 $115.1 $227.6 Est Rep Date Mid-April 2000
*Note EPS excludes noncash charges of amortization and warrants
Highlights:
--R.W. Electronics Acquisition Continues Hybrid Strategy Of Building Online
Volume Through Offline Relationships. NECX's acquisition of Real World
reinforces VerticalNet's strategy of leveraging its online presence and
strong currency to migrate transaction volume from offline to online. Real
World is the fifth largest electronic components market maker, overlapping
with 14 of VerticalNet's current trading communities, and its acquisition
represents another strong step by the Company toward building critical mass
in the marketplace. We believe that this hybrid strategy is necessary to
build liquidity and establish leadership in net market places.
--Real World Is Known For High Productivity And Value Added Services. The
key assets in these market-making firms are the traders and Real World has
some of the best, as the firm's productivity is tops in the industry ($2.8
million/ee versus $1.8 million for NECX). Real World provides open and spot-
market services and value-added services like end-of-life inventory
management and custom purchasing programs. Its 8,500 trading partners is
largely additive to NECX's 18,000.
--Deal Details. Deal was a purchase transaction for $80 million ($10
million cash/$70 million stock). Real World had gross sales of $170 million
in 1999 with almost $20 million in net revenues for gross margins of 11.5%.
We will revise estimates once the acquisition is closed.
Company Description
VerticalNet owns and operates a portfolio of 55 vertical trade communities,
industry-specific and individually branded Web sites dedicated to serving a
highly targeted audience of industry professionals and participants. The
Company's "vertical" portfolio approach allows the Company to serve each
industrial sector in-depth, giving business professionals highly targeted
content, community, and commerce opportunities. The trade communities are
organized into 10 primary sectors, such as communications, health
care/sciences, and food/packaging. Each community offers in-depth and up-
to-date information on the most relevant industry news and trends,
community and chat, and e-commerce centers with products and services
available to purchase online or via catalog. In addition, VerticalNet will
soon be offering auction and exchange capability, further building one of
the Web's leading platforms focused on fostering greater trade and
communication among professionals.
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