Q&A: Full steam ahead for BCE Emergis
ottawacitizen.com
The Ottawa Citizen - May 31, 1999
Montreal-based BCE Emergis Inc. has quickly
developed into one of the brightest stars of
Canada's burgeoning electronic commerce
industry.
The fast-growing outfit was created a year ago
through a merger between MPACT
Immedia Corp. and the electronic business unit
of BCE Inc. It now enjoys a market capitalization
of more than $3 billion, nearly tripling in value
since the beginning of the year.
Unlike its more prominent U.S.-based cousins, such as
Amazon.com, BCE Emergis is targeting the business market,
not consumers. The Montreal outfit processes hundreds of
thousands of mortgages electronically at $5 U.S. each, and is
starting to generate terrific traffic in Internet payments on behalf
of customers.
More recently, it began a pilot project allowing Quebec's
woodchip companies to offer their production to mills through
on-line auctions.
All lines of business are growing rapidly. BCE Emergis chief
executive Brian Edwards is confident his firm will top $175
million in sales this year, up from $75 million-a-year (trailing
sales) a year ago, when the BCE-MPACT deal was announced.
Mr. Edwards was interviewed recently by James Bagnall, the
Citizen's associate business editor. The following is an edited
digest.
Q: What triggered the MPACT merger with the electronic
business unit of BCE?
A: We were converging on the same market and noticed that the
bigger players were all U.S. based. We needed to become
bigger to make an impact. So the MPACT people convinced
some of the people at BCE that there was more opportunity to
grow the business by taking the e-business unit outside the
company and giving it some independence and more visibility.
Q: The deal was announced in May and closed Aug. 31. What
were the biggest priorities on Sept. 1?
A: We did two really important things from September to
December. We worked really hard at putting these businesses
together and reducing our costs. And we picked the industry
sectors we thought we were going to be good at, getting rid of
the overlaps.
Q: What businesses did you drop?
A: All kinds of stuff. We probably dropped at least two dozen
projects. In some cases we had messaging platforms that were
overlapping -- some from Netscape, IBM, Microsoft and Tandem.
So we focused most of the new stuff going forward on Microsoft.
Q: In a fast-moving industry like this, you've probably got
engineers pushing all kinds of ideas. How do you decide where
you should place your efforts?
A: Focus is the real key. Everybody is talking about electronic
commerce and it's a very broad definition. You could be all over
the place and so we've asked ourselves where can we be the
worldwide market leader. We picked industry sectors with this in
mind.
Q: As I understand it, you offer three main products -- connectivity
services, e-commerce services and e-payment services.
A: There's also a fourth piece which is network security.
Q: Is that in collaboration with Entrust Technologies Inc.?
A: Yes. Because we're a services company, we make our money
through building the (electronic) infrastructure and then we make
money on the transactions and on the subscriber. So, when we
go out and resell a security system, we might mention that it is
Entrust.
Q: What industry sectors do you concentrate on?
A: The financial, where we've won the electronic bill presentment
project sponsored by e-route inc., a consortium of Canadian
banks. We're also strong in the U.S. mortgage industry but we've
just done some major things here in Canada as well. The third
vertical -- we're struggling with what to call it -- is in retail and
distribution. It's really a merchant-enabling marketplace. There's
a lot of Internet and commercial service providers who would like
to offer their customers the ability to buy and sell products (over
the Internet).
Q: You're also targeting manufacturers, aren't you?
A: Yes, especially in the auto sector. We were the first
organization certified for doing business on the ANX network (a
major electronic network that ties together North American auto
makers and their suppliers). Now the real opportunity is to be
providing transaction services on that ANX network.
We're also looking at dedicating a team to the government
sector. We are doing extremely well in the whole area of
adjudication of health care transactions; we've got some new
major contracts we're about to finalize so we think that's going to
become a very big sector for us.
Q: The analysts who follow you are calling for some pretty
phenomenal numbers -- at least 60 per cent a year in sales
growth over the next few years. What are the primary drivers?
A: Take the electronic bill presentment project; we expect that will
drive $1 billion worth of revenue for us over the next 10 years. It
will start a little bit slower but you're going to get a run rate of
$100 million-plus per year.
Q: If you look at revenue projections of $450 million in 2001, what
proportion of that would be the e-route project?
A: You're getting close to 20- to 25-per-cent range for that
project; I'd like to think that anyway. We've just completed a
survey of all the different components of the U.S. mortgage
industry. That's a multi-billion-dollar opportunity we think. We also
have a first mover advantage in that market. We're there and no
one else is.
Q: That's hard to believe.
A: Yes, that's the case. This is a (paper) transaction process
that's got a lot of opportunity to become electronic. Despite all
the talk, this market is just barely getting started. That's why these
(growth) numbers are so fantastic.
Q: Who do you view as your primary competitors?
A: In general, in terms of public companies, we see Sterling
Commerce Inc. of Columbus, Ohio and Harbinger Corp. of
Atlanta, Georgia -- two firms we've always viewed as important
competitors. Then, on the electronic payments side, we have
firms like CyberCash Inc. of Reston, Virginia and Verifone, a unit
of Hewlett Packard Co. of California. On security, even though
we have a partnership with Entrust, we also sometimes try and
sell our security software to our service accounts, so we
sometimes end up competing.
Q: Your share price yesterday was around $41, which gives you
a market capitalization of roughly $3 billion. That's a nice pile of
currency you can use for acquisitions. What principles guide you
in making them?
A: We want to strengthen our industry sectors, improve our
product range and expand in the U.S.
Q: Could we expect to see acquisitions before the end of the
second quarter?
A: I don't know that I can get so precise. But let me say -- this is
an internal target -- we'd like to think we could have the
equivalent of $100 million of run rate revenue by the end of 1999.
In that I would include the Newstar deal. (BCE Emergis acquired
the $22 million-a-year e-finance unit of Newstar Technologies
Inc. last December.)
Q: If you do pursue e-commerce acquisitions, you are looking at
companies with extravagant valuations by conventional
measures. Does that concern you?
A: We would like to pay a reasonable price, obviously. But the
problem isn't so much the price, it's that there just aren't that
many companies of significant size that you could actually buy.
It's going to be a building thing, too.
Q: Fortune magazine in its May 24 edition did a special on what
it calls "e-CEOs." You'd be one of these. It characterized these
as being evangelizing, paranoid and brutally frank. Do you
actually fit this description?
A: Probably, yeah.
Q: Can you give us a sense what it's like managing a company
that's growing so quickly on so many different fronts. Were you
trained for this?
A: It's on-the-job training. The key thing in all this is that two things
have to happen together. One is you have to evangelize. You
have to get your message out. Second, you really need some
hard-driving, energetic, high, high energy people who share your
view of the way the world is evolving. I see a lot of businesses
that just don't even understand they could be totally by-passed as
a business if they just keep doing what they're doing.
Q: What's your head count now?
A: About 600. There's about 325 in Montreal, 225 in Toronto and
50 in Livonia, Michigan.
Q: What's the significance of the Michigan site?
A: It's a suburb of Detroit. We're in the automotive sector; we've
got about 50 people there that are part of our U.S. initiative.
Q: BCE has an option to retain its stake in BCE Emergis at 65
per cent.
A: Correct.
Q: Where is it now?
A: On an outstanding shares basis, it's about 68 per cent. Fully
diluted, it's 63 per cent.
Q: In January, BCE invested $49 million.
A: They were exercising their top-up right on the Newstar deal.
Q: Will BCE continue to exercise this right?
A: Yes, they've said they would. |
