Good Gazette article on the deal. However, reporters and analysts seem to have totally missed the inroads that Mpact has made on its own internationally, even beyond the US. This deal has to add considerable credibility that would have taken years to develop. Surely a proud moment for Mpact's management.
THE GAZETTE, Montreal, Friday, June 5, 1998 by Andy Riga
Bell buys control of MPACT
Phone firm accesses U.S. market for business-to-business dealings via Internet
Hoping to cash in on an expected boom in business-to-business commerce over the Internet, Bell Canada is buying a 65-per cent stake in electronic-commerce firm MPACT Immedia Corp. in a cash-and-stock deal valued at more than $450 million.
The deal would give Bell easier access to the U.S. market as well as extra services to offer on its new cross-Canada fibreoptic network. MPACT, a Montreal-based software-and-Internet-services company, would gain the cash and credibility that come with being part of the BCE Inc. family, plus access to Bell's business customers.
The announcement yesterday ended 10 days of speculation about MPACT that drove the company's stock skyward. Yesterday, MPACT fell back to earth, closing at $11.40, down $2.30 on the Montreal Exchange.
Under the deal, MPACT will issue 48 million shares of MPACT to Bell. Bell will contribute $54 million in cash and will merge into MPACT a unit offering similar software and services. That unit - Electronic Business Solutions, part of the Bell Emergis division ? is valued at more than $400 million.
The transaction, subject to shareholder approval, is expected to close Aug. 31. The combined company would have more than 400 employees and be based in Montreal. The combined businesses would have had revenue of $75 million last year, most of it from EBS.
"We needed to grow a lot faster and the best way to do that was to try and align ourselves with a large strategic partner in the telecommunications industry," MPACT president and chief executive Brian Edwards told reporters in a conference call.
He said MPACT needed more clout to fend off rivals, like U.S.-based firms Sterling Commercial Inc. and Harbinger Corp.
Bell, for its part, saw a lot of potential in MPACT, which had sales of $19 million last year, added Jim Tobin, executive vice-president of Bell and president of Bell Emergis. "MPACT is a company that has done very well, but the things in the pipeline ? contracts, the relationships, the product-development efforts ? showed there is a lot more growth to come," he said.
MPACT sells electronic-commerce software and offers Internet-related services that allow companies to move from paper-based transactions to electronic ones. Companies figure they can save time and money by going online to interact with one another and to deal with customers and suppliers.
MPACT, the parent of TotalNet, a Montreal-based Internet service provider, has made inroads in the U.S., particularly in the mortgage-banking business, where it helps appraisers deliver reports electronically to banks, speeding up the process and cutting costs. It costs a bank up to $150 to process a paper appraisal, while an electronic version is processed faster and costs about $8, MPACT
says.
Emergis offers similar services. For example, it is involved in a massive project to connect Quebec employers to the province's workers' compensation board, allowing them to submit fees and fill out forms electronically.
There's room to grow in the field. Tobin, who will be chairman of the combined group, noted that major U.S. automakers will soon require suppliers and dealers to conduct business with them electronically, creating opportunities for companies like MPACT.
Research shows that the dollar value of electronic commerce is growing by 50 per cent to 100 per cent per year. Edwards said MPACT "expects to keep growing at the market rate or faster."
Tobin said the merger with MPACT which does more than half of its sales in the U.S., will help in dealing with U.S.-based Bell partners like Netscape Communications Corp. Previously, Bell Emergis was "kind of stuck in Canada," making it a less attractive partner. The new MPACT "is clearly positioned as a North American player and it'll give us more room to do things" in the U.S. he said.
Still up in the air are the fates of TotalNet, which has 41,000 customers in Quebec and Ontario, and Bell Emergis's Bell Advantages service, which offers Internet access to business.
Credibility for one, entrepreneurship for the other partner
MPACT chairman and chief executive Brian Edwards said, "We certainly don't intend to go out and start competing with Sympatico," Bell Canada's Internet service, Canada's largest provider with 500,000 customers. Another MPACT executive said TotalNet may be "rolled into Sympatico."
As for Bell Advantage, a Bell Canada spokesman said no decision has been made on whether the service will be offered by MPACT or another Bell unit.
Some financial analysts applauded the moves. Michael Deighton of Groome Capital said the combination makes a lot of sense. "MPACT gets credibility from Bell, and additional size ? a critical mass in terms of number of clients. And they can get access to bell's client list ? they're signing up 5,000 to 10,000 new business clients a month to Internet access."
Small and medium sized customers signing up for Internet access might be convinced to sign up for electronic commerce services that could save them money by helping them deal with suppliers and customers electronically and paying bills and taxes online.
What does Bell get? "They get an entrepreneurial entity that is going to be very aggressive," Deighton said. In the past, "some clients may have been reluctant to go with Bell because they disliked the (company's) sort of monopolistic image."
It'll also be able to offer new services on the coast-to-coast fibreoptic network that it is assembling at a cost of close to $1 billion.
The new MPACT will have a strong balance sheet, Edwards said. It'll have no debt and $100 million in working capital, including about $70 million in cash on hand. "We'll have a propensity to do more partnerships and acquisitions," Tobin added, noting that the industry is still fragmented.
Edwards said MPACT, which lost $14.6 million last year, will be "a very fast-growing aggressive company that makes money," though he wouldn't say when he expects it to be profitable.
Management currently owns about 10 per cent of MPACT's shares. After the deal, they would own about 3.4 per cent of the 73 million shares outstanding on a diluted basis, MPACT said. |
