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ICGE: A Month to Remember!?

Where's an investor to turn? With Internet (and non-Internet as well) issues showing extreme volatility, investors might question whether there are any safe havens.

One sector that makes the most sense for Internet investors as we navigate these turbulent times is business-to-business (B2B) e-commerce, where there are high barriers-to-entry and no seasonal down-trends. Of course the valuations are super high here, as they are elsewhere in the industry. But, B2B valuations may be in sync when you consider the companies' prodigious market opportunities and relative value (valuations compared to other Net sectors).

Analysts and investors a like, have basically declared Internet Capital Group the leader in the B2B Internet sector. Not surprising; among other winners, ICGE holds a 36 percent stake in VerticalNet (VERT), which now carries a market cap of roughly $9 billion.

Internet Capital Group's dominant position and investment expertise in B2B will be on display during the month of February. ICGE will IPO three of its coveted properties: eMerge Interactive, Universal Access, and Onvia.com. It is this self-created catalyst or momentum that may make ICGE, with a price of $116 and $30 billion market capitalization attractive to investors...at least through February.

eMerge Interactive (ICGE ownership, 42.5 percent)

The company is basically an online marketplace providing community, content, and commerce (auctions) for the cattle industry...a $54 billion market opportunity in the U.S. alone.

The company's Web site was only launched in August and many people are arguing that it's too early for eMerge to tap the public market. Wrong! eMerge is following the path of Amazon.com (AMZN) and Yahoo! (YHOO) with the idea of getting big...fast. The capital raised will allow eMerge to further distance itself from competitors by allowing the company to build brand awareness, traffic, infrastructure, and content, while creating a "war-chest" for possible acquisitions. eMerge's closest competitor, Farms.com, will never be able to raise the same funds or generate the same market value because eMerge will have successfully grabbed the "first mover advantage" (FMA).

eMerge Interactive (EMRG) will have slightly more than 31.7 million shares outstanding after its IPO. Based on an estimated offering price of $12 per share, ICGE's 42.5 percent interest will be worth about $162 million, roughly 0.54 percent of ICGE's entire market capitalization.

eMerge is attacking a unique vertical and the market will likely reward the company. Consider the recent success of Neoforma.com (NEOF). Neoforma.com, a vertical B2B play, connects medical equipment companies with hospitals and doctors. The shares quadrupled from $13 to $52.38 in its recent IPO. Expect a strong debut for eMerge.

Universal Access ICGE ownership, 26 percent

Universal Access is raising $115 million in a deal that will price within the next two weeks. The company delivers ubiquitous and cost effective network connections to Internet Service Providers (ISPs), Competitive Local Exchange Carriers (CLECs), National Telecommunications Companies, and Content Providers. Universal hits on the two hottest Internet sectors: Infrastructure and B2B. Goldman Sachs is the lead underwriter in a deal that will most likely s