Acquisitive Santa Clara, California-based internet consultancy, USWeb/CKS, says it has taken a step towards maturity with its proposed $300m takeover of New York-based management consultancy Mitchell Madison Group. The acquisition, which is expected to close in the autumn, will see USWeb/CKS issue around 14.4 million shares of its own stock for Mitchell Madison’s equity interests. Half of these shares will be issued at closing with a further 25% on the same date for the next two years, subject to performance targets being met.
However, the total value of the transaction is likely to exceed $300m, a not inconsiderable sum for a company that is yet to turn a profit. USWeb/CKS may justifiably claim to be the first pure play internet company to top $100m quarterly revenues after achieving 86.8% revenue growth to $100.9m in the second quarter to June 30. Despite this, the company recorded a net loss for the same period of $22.5m, albeit down from a loss of $61.1m in the same period last year.
Given this record the investment in Mitchell Madison looks a little risky. However, USWeb/CKS believes the takeover will provide it with a step forward in its strategy consulting capabilities, enabling it to generate repeat business by developing longer-term relationships with clients.
Mitchell Madison was founded in 1994 by former McKinsey & Company executives and has concentrated its expertise on business-to-business issues, creating new business models around e-commerce, supply chain planning, electronic trading and risk management. Mitchell Madison’s existing client base includes many top ten companies in telecommunications, financial services and securities as well as leading European industrials. It has also expanded into other industry sectors including healthcare, retail and technology. It currently has some 550 consultants worldwide.
Mitchell Madison would be only the latest purchase for USWeb/CKS which has been busy making small buys, both in the US and more recently in Europe, since its establishment three years ago. The two companies are awaiting the approval of antitrust regulators and Mitchell Madison’s shareholders.
