Will ScreamingMedia Buy Inlumen?

Could the same market forces clobbering the financial services industry be forcing financial content aggregators ScreamingMedia and Inlumen into each other’s arms?

Renewed talk of a possible merger agreement between Web-based content aggregator ScreamingMedia and its fellow financial info provider has surfaced recently. It’s not the first time deal chatter has focused on ScreamingMedia either. The company has been in the hunt for merger partners for over a year amid a shrinking market for Web-based financial information syndicators, a vertical it wants to crack.

Although outsourcing companies are enjoying a spike in interest from financial services firms looking to cut costs, other IT players selling into the sector — such as content aggregation software — are scrambling for business while uncertainty hangs over financial markets. The conditions have led to more talk of who might consolidate.

No one associated with ScreamingMedia and Inlumen would say for attribution whether the two companies have moved into a due diligence phase on a possible merger or acquisition. Inlumen’s chief executive Laurent Ohana was on vacation and not available for comment. A spokesperson for Inlumen (which was known as news feed company NewsAlert until early 2000 when it was spun off in a sale), said the company would not comment on rumors or speculation.

Kirk Loevner, president and CEO of ScreamingMedia, would only say that “M&A (mergers and acquisitions) is an important part of our future.”

To a large extent, Loevner’s comment reflects his dwindling options as he looks for ways to steer the company into the black and deliver on the board of directors’ marching orders to turn a profit.

On that count, ScreamingMedia has made progress. It reached cash flow
profitability for the first time during the second quarter on revenues of $8.9 million, up about 33 percent from last year’s sales during the same period.

Its net loss of $5.5 million, or 13 cents per share, hasn’t eased all that much, largely due to asset impairment and restructuring charges. Last year’s second quarter net loss was $5.8 million, or 15 cents per share, on sales of $6.7 million.

While it boasts some big name clients such as AT&T, ScreamingMedia also had to scramble to regroup after a major software licensing deal with the Boeing Company was put on hold in the aftermath of September 11.

The airline manufacturer had signed on to use ScreamingMedia’s SiteWare content platform as part of its high-speed Internet service for the airline industry called Boeing Connexion. At the time of the May, 2001 announcement, the deal was considered the biggest in ScreamingMedia’s eight year history. But with the airline industry in a financial crisis wrought in part by September 11, the contract has been in a kind of holding pattern until the project moves beyond the government and executive markets it currently serves.

In the meantime, however, ScreamingMedia has hunkered down in order to conserve cash. It managed to reduce its quarterly burn by about 91 percent to a range of about a half million dollars to $1 million as of June 30th. The company expects to use up between $1 million and $2 million during the third quarter. Last year, it used up about $5.3 million in cash during the second quarter.

As of the end of June, ScreamingMedia was sitting on about $28 million (out of about $60 million in cash and cash equivalents) with which to find a merger or outright buy — at the right price.

Odd Deal Climate

Venture investors say with markets in a downturn and lower profit
expectations bringing down company valuations, now is the time to look for strategic purchases. However, some deal-makers may be waiting for prices to fall even more while purchase targets find they can’t afford to sell at current valuations.

The odd deal climate could help the privately-held Inlumen and the shrewd negotiator running the company. Laurent Ohana, Inlumen’s chief executive, is a former corporate attorney with 15 years experience in the financial services, interactive communications and Internet sectors.

He’s also a seasoned entrepreneur and venture investor whose clients included media company Hachette (a unit of Lagardere), the Estate of Leonard Bernstein, Digital Courier Technologies Inc. and Snickelways Interactive. With close to 12 years operating experience in financial markets, Inlumen might be able to fill out ScreamingMedia’s market ambitions in the sector.

ScreamingMedia has its share of shrewd negotiators too, such as board member James Robinson III of RRE Investors, an early backer. But the company has seen its share of hits and misses. It came close to buying out rival Web content and info provider iSyndicate last year before Yellowbrix, another content aggregator, got there first.

Instead, ScreamingMedia bought Stockpoint, a provider of sophisticated portfolio management software, in a $21.6 million deal last July. With Stockpoint’s big-name banking clients in tow, ScreamingMedia sought to make a market in the financial services vertical while diversifying from its reliance on its general specialty — taking content and piping it into other content-centric Web sites.

The purchase helped ScreamingMedia keep up with its competition, such as BigCharts.com, the financial data provider part-owned by CBS and Pearson under their stake in MarketWatch.com . But it could use some help too. MarketWatch.com just announced that its products are now being syndicated by research and data providers, Thomson, FactSet Research Systems, LexisNexis Information Services, NewsWare and Track Data Corporation.

With fewer dot-coms needing Web-based content syndication contracts, and new software products a tougher sell to a finicky financial services industry these days, it’s no wonder that merger talk has picked up again. For Inlumen, an acquisition or even a merger of equals could be just the ticket to staying competitive. Same for ScreamingMedia.

That way, Inlumen could continue to focus on serving financial markets via content feeds to corporate intranets, while ScreamingMedia could diversify even further into mobile and wireless content syndication.