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E.piphany: Shopping for Dominance

Yesterday, the stock price of E.piphany (EPNY) got whacked, plunging 61-15/16 to 187. This was the response to the company's announcement to purchase Octane Software for 12.8 million shares (this represents about 26.5 percent of the new combined entity).

The deal sounds expensive and dilutive. Then again, paying top-dollar for acquisitions has been a smart strategy for such companies as Cisco. However, the acquisitions must be for companies that substantially contribute to a company's leadership.

E.piphany is in a fast-growing field known as customer relationship management (CRM). CRM is critical for the success of companies that want to sell more products (and what company does not?). E.piphany's technology -- known as E.4 -- basically analyzes customer behavior and then generates strategies to super-charge sales. E.4 does such whiz-bang things as data warehousing, data mining, campaign management, and real-time personalization.

On the face of it, Octane Software is a small company. In 1999, the company had a mere $3 million in revenues. Although, this year the company is expected to generate $35 million. While E.piphany analyzes customer patterns, Octane builds technology that allows for better communications within a company. Octane's technology is called Octane 2000. It is a Web-based application that manages real-time interactions between customers, partners, suppliers and employees over a myriad of touchpoints, like e-mail, the Web, chat, fax and phone. Octane 2000's is built using open standards and thus integrates seamlessly within enterprise environments.

Octane Software's technology has also been used in a variety of business-to-business marketplaces (such as Buzzsaw.com, which is the hub of the construction industry).

With the combination of E.piphany and Octane Software, there will be close to 130 customers. They include: American Express, Critical Path, GTE, Charles Schwab, and even Amazon.com.

With its powerful technology and customer base, Octane Software was a sure bet for an IPO. But by combining with E.piphany, both companies will benefit -- offering customers a full-suite of services and ultimately enhancing the overall value of E.piphany.