BravoSolution will acquire Verticalnet for $15.2m. As well as buying up its shares, the Italian company will also take on Verticalnet’s debts and other liabilities. Verticalnet has $5.3m in debt that is due and payable within the next 6 months and as of September 30, 2007, its cash balance had dropped to approximately $640,000.

Verticalnet’s board of directors has recommended the deal on the grounds that it believes it is the best way to ensure business continuity and offers the best financial return to shareholders and other interested parties. The transaction is subject to shareholder approval.

Given its current revenue base and significant expenses associated with operating as a public entity, the company said it was uncertain when or if it would be able to achieve profitable operation as a stand-alone business.

For the period ending September 30, 2007 preliminary revenues are expected to be in the range of $3m to $3.1m, compared to $4.2m for the year ago quarter. Preliminary operating losses are expected to be in the range of $1.7m to $1.9m, which is within the same range as the preceding quarter and an improvement when compared with the year ago quarter.

In order to survive without selling the business, Verticalnet said it would need to raise over $10m in order to meet balance sheet requirements and ensure business continuity, but that level of financing would not assure success.

The combination with BravoSolution provides value to our shareholders, continuity to our customers, will result in the repayment of all of our debt outstanding and will provide for new and enhanced opportunities for our employees, said Nathanael Lentz, Verticalnet’s president and CEO.

The company raised $2.175m in June of this year in preferred stock financing but it did little to address its underlying problems. It also executed a reverse stock split in August in a bid to reach the $1.00 minimum share price required for ongoing listing on the Nasdaq.

The Malvern, Pennsylvania-based company has been looking for a buyer for the past nine months and has received interest from both strategic and financial buyers but believes BravoSolution represents the best offer. However, Verticalnet is able to, and said it will, solicit alternative acquisition proposals from third parties until November 19, 2007. If the transaction is approved, it is anticipated that it will close during the first quarter of 2008.

Verticalnet was hit by several problems. One was the transition from legacy applications and a license business model to a SaaS and subscription based mode of operation which incurred costs and reduced the amount able to be invested in new product and service development.

The company was also hit by increased competition from a diverse set of players that included SAP and Oracle but also specialists such as Ariba, Emptoris, Frictionless Commerce, Ketera Technologies, Perfect Commerce and Procuri. Of these Ariba is the leader in the sector. It made a loss of $47.8m on revenue of $296m during fiscal 2006. Verticalnet posted a loss of $24.5m on revenue of GBP16.2m during 2006.

BravoSolution is a provider of web-based esourcing and spend management software and services. It was founded in June 2000 by the Italcementi Group, which is one of Italy’s 10 largest industrial companies, and operates as an independent, majority owned subsidiary. BravoSolution’s revenues for 2007 are expected to be approximately $46m and the company has over 300 customers in 18 countries. It has managed over 70,000 online negotiations, totaling over $50bn of spend.

The Italian company does most of its business in Europe and is expanding into Asia. It hopes to establish a base in the US market through the Verticalnet acquisition, banking on the strength of its financial backing to enable it to succeed where Verticalnet failed. Verticalnet’s primary market was the US although it also has some European presence. The overlap is limited however.

Our organizations are already closely aligned in terms of commitment to customer service and delivering leading solutions. While we operate in similar arenas, our solution sets have been developed in response to different marketplaces. Our products and services are complementary and BravoSolution is committed to support Verticalnet’s current software solutions and its new and existing customers, said Lentz.

If the transaction completes the intention is to continue to support and develop the applications and services from both companies. Since the two companies address complementary geographic markets and customers and offer products with complementary features, the combined entity intends to continue to support and invest in all existing solution modules going forward, said Verticalnet in a statement. As a result, BravoSolution plans to continue and increase the investment in Verticalnet’s XE Supply Management Suite as well as expand Verticalnet’s current sales and service organization in order to accelerate growth in North America and Europe while continuing to offer all customers the highest quality of service.

Our View

If the BravoSolution/Verticalnet deal closes, the combined entity will become the largest specialist player in the field, with annual revenue in the $60m plus range. The move could trigger further consolidation within the sector, which is mostly inhabited by relatively small, independent vendors.