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uBid's Sell Out: A Bargain?

On Feb. 10, CMGI Inc. (CMGI) announced a definitive agreement to acquire uBid (UBID) in an all-stock transaction valued at roughly $407 million.

The deal itself and the value placed on uBid took me by surprise; uBid was trading at $27, $70 off its $97 high reached shortly after going public on Dec. 4, 1998. The synergies are evident and benefit both uBid and CMGI. uBid is now trading at 29 with a $333 million market capitalization. CMGI values uBid at about $35 ($407 million market cap).

A site like uBid.com attracts buyers and sellers of retail items. There is a strong channel of transactional revenue taking place with potential to scale for products and a larger audience as the Web grows. Also, advertisers want to be posted in front of buyers' eyes, uBid attracts a buying audience. All of this in addition to the firm's unique online auction technology and services makes uBid the perfect acquisition for CMGI.

uBid is the complete story. It's a commerce-driven Web company with a large group of unique visitors, a significant amount of registered users (most are making transactions), an international platform in place, entrance into business-to-business (B2B) e-commerce and proven revenue streams.

Here's a quick run down:

  • The undisputed leader in the online business-to-consumer (B2C) auction space with powerful technologies and services. (Just like other leading e-commerce companies, CMGI's properties will need inventory and merchandising expertise as the business model expands past virtual boundaries.)
  • Recently, the company made its entrance into B2B e-commerce where it is essentially the auction engine for participating sites with revenue sharing arrangements in place. (CMGI now claims almost 50 percent of its portfolio holdings' lye in B2B e-commerce.)
  • An International platform is in place. (Australia, Asia Pacific, Europe)
  • uBid catered to 4.6 million visitors during the peak holiday season and ranked as the Web's 14th most visited site during that time.
  • 9.3 quarterly unique visitors
  • 1 million + registered users (the majority making actual transactions)
  • Q4:99 revenue of $69.9 million and year-over-year "earnings" growth of 325 percent, dwarfing eBay's y/y growth.

The acquisition makes a lot of sense for CMGI. The holding company will now have auction capabilities across its entire network of sites. So sites like PlanetOutdoors.com, Furniture.com and Chemdex will be able to improve their technology and service offerings, while adding additional revenue channels. In addition, CMGI will be able to drive additional traffic to the uBid site, which will offer all CMGI related products/services. It seems like a partnership/joint-venture could've done the job, but why own less of something that looks so promising. Can't you picture going to AltaVista in a short while and being able to bid on any product/service that is offered within the CMGI network? What about being able to bid for products being auctioned of live at CMGI's iCast.com property?

CMGI shareholders, welcome to a world of endless online auction opportunities. While CMGI offered a generous $186 per unique user in this deal about double the going rate for advertiser supported sites the premium was an infinite multiple of EBITDA, which is still negative. That's probably why the deal came at lot less than investors thought the company was worth shortly after its IPO.

Of course, this isn't the first time companies have been acquired at prices well below prior peaks: How about AOL's take over of Netscape Communications? Those who hold shares as they decline need to take note: your investment may never



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