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
company to build brand awareness, traffic, infrastructure, and content,
creating a “war-chest” for possible acquisitions. eMerge’s closest
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
$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
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
Onvia.com ICGE stake, 20 percent
Onvia.com is essentially an online marketplace for small business
owners and entrepreneurs. The company focuses on providing business
services, products, customer-lead generation, tools, news, and advice for
user base. A buyer (small business owner) fills out an online form
describing his/her exact needs for services. The buyer then receives a
list of customized responses (quotes) from Onvia’s seller network. Buyers
compare quotes and decide which partner(s) fit their needs.
Onvia is a buyer-driven, reverse auction marketplace for
business-to-business e-commerce. Lke eMerge, Onvia will gain the FMA
over competitors such as BizBuyer.com.
Internet Capital Group has created a catalyst for its own stock while
other Internet companies languish in despair due to seasonal down-trends
or a slow down in the market’s growth drivers (percent of new online user
growth, total commerce dollars spent and total advertising dollars
spent). This is what is attractive about incubators, especially
incubators immersed exclusively in the lucrative B2B sector. It is very
likely that all three IPOs will go out with a bang and ICGE’s substantial ownership
stakes will reward ICGE investors. For these reasons, at current
levels, ICGE looks like a buying opportunity…at least through February.