Converge to Buy VerticalNet Subsidiary
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High profile B2B exchange Converge, Inc. (formerly known as eHITEX), and ebusiness network VerticalNet, Inc., announced a definitive agreement for Converge to acquire NECX, a wholly-owned subsidiary of VerticalNet.
Cupertino-based Converge was founded in May 2000 by 15 leading high technology OEMs, contract manufacturers, component manufacturers and distributors to deliver supply-chain efficiencies using Internet technology. In June the company received $100 million in funding from its founders who are: Agilent Technologies, AMD, Canon, Compaq, Gateway, Hitachi, Hewlett-Packard, NEC, Quantum, Samsung Electronics, SCI Systems, Solectron, Synnex, Tatung and Western Digital.
"The acquisition of NECX is significant for the industry, because it offers members a critical mass of participants and volume in a single exchange," says Carly Fiorina, Chairman and CEO of Hewlett-Packard.
Peabody, MA-based NECX operates a global trading exchange that matches buyers and sellers of electronic components and computer systems, and trades in excess of $1 billion annually in North America, Asia and Europe.
"This (agreement) confirms our view that industry-led exchanges will emerge as viable businesses and evolve into industry operating platforms that serve the trading and collaboration needs of specific supply chains, says Goldman Sachs Internet analyst Tom Berquist. "We continue to be impressed with the speed at which Converge is assembling the necessary assets to establish itself as a leading example of this emerging business model."
"This industry depends on the collaboration of hundreds of companies to bring high-value products to market," says Converge CEO Bob Lewis. "Our mission is to reduce our founders' $200 billion annual cost of direct materials by five to 10 percent over the next three years, using a straightforward approach -- build deeply liquid markets for direct goods and services, offer new collaboration tools to improve efficiency and operate a confidential, trusted environment."
Converge also announced that it has chosen VerticalNet Solutions, a division of VerticalNet, to provide the technology backbone for its trading operations. As a result of the acquisition agreement, VerticalNet will receive a 19.9% equity interest in Converge and a seat on its Board. The companies expect the acquisition to close during the first quarter of 2001.
In a separate agreement, Converge has entered into a three-year software licensing and professional services contract with VerticalNet, valued at $107.5 million, whereby the VerticalNet Solutions platform will serve as the technical backbone for Converge's trading operations. VerticalNet officials say the agreement advances VerticalNet's position as the leading software provider in the direct material procurement space.
An additional component of the agreement includes a commitment to link Converge with each of the fourteen technology-focused verticals in VerticalNet Markets, thus creating a "linked web" of content, community, and commerce between VerticalNet and Converge.