Italian firm buys a dot-com darling

Verticalnet Inc., the Malvern company catapulted to fame and, briefly, fortune during the dot-com craze, said yesterday that it is being acquired for $15.2 million in an all-cash deal.

The acquisition by BravoSolution S.p.A. of Italy will combine two supply-management-software companies.

BravoSolution, a subsidiary of Italian cement-maker Italcementi Group, is profitable, with 2007 revenue expected to be $46 million.

In contrast, Verticalnet has never been profitable. At the end of June, the company had $5.3 million in debt that was due and payable within the next six months, and a cash balance of only $640,000.

"It was clear that we needed to do something," Verticalnet president and chief executive officer Nathanael V. Lentz said.

Under the agreement, BravoSolution will assume Verticalnet's outstanding debt and provide working capital - $824,000 - through the purchase of series C preferred stock. "That was critical for our business," Lentz said. The stock purchase will close next Wednesday.

Verticalnet will become the U.S. business of BravoSolution, pending approval by Verticalnet shareholders. Both boards have approved the deal, which is expected to close in the first quarter next year.

Verticalnet's 80 employees, its CEO, and its U.S. headquarters will stay in Malvern. Verticalnet will be renamed BravoSolution US.

Under terms of the transaction, BravoSolution will pay $2.56 a share for Verticalnet common stock, and acquire Verticalnet series B preferred shares for a total of $3.2 million and series C shares for a total of $824,000.

Verticalnet shares, which closed Thursday at $5.61, tumbled 47 percent, or $2.63, yesterday following the announcement, to $2.98 on the Nasdaq.

On Aug. 31 - the day Verticalnet signed a "letter of intent" with Bravo - the shares traded at $2.67.

"We have gone through a process of looking for a buyer, and this was the best value offer we received," Lentz said in an interview.

As an alternative to a sale, Verticalnet said it would have needed a cash infusion of more than $10 million.

"This combines us with a company that has significant financial strengths, and eliminates the challenges that we face from having had a balance sheet that most of our customers and prospects consider a risk," Lentz said.

In an e-mail to employees, Lentz said: "We expect the financial concerns that have acted as a barrier to growth to be reduced. This combination will result in a profitable and growing supply-management vendor - one of the three largest in the world."

Bravo is using Verticalnet as its entree into the U.S. market. "We have one of the top-rated software platforms in the industry," Lentz said. "They are buying and entering the U.S. with a leading technology product."

A former dot-com darling, Verticalnet was founded in 1995 by Michael J. Hagan and his former St. Joseph's University roommate, Michael McNulty. McNulty and Hagan are now investors in Philadelphia Media Holdings L.L.C., which owns The Inquirer, the Philadelphia Daily News and philly.com.

At its peak, Verticalnet operated 59 online, business-to-business sites, where businesses advertised and sold to one another.

But that concept did not catch on quickly enough, and Verticalnet sold its online marketplaces in 2002 and remade itself as a software company - supply-chain and procurement software - to help companies manage and restock inventories.

At its height, Verticalnet had 1,800 employees, and its stock hit an all-time high of $138.88 a share, or $77,774 on a split-adjusted basis, on March 9, 2000. A former company CEO once predicted that Verticalnet would be to Philadelphia what Microsoft Corp. is to Seattle.

But after the technology bubble burst, Verticalnet shares plummeted.

Verticalnet said BravoSolution plans to expand Verticalnet operations in North America and Europe. The combined company will have $60 million in revenue and 400 customers.

"This creates an opportunity for us to continue to deliver our supply-management solutions to the market and to take advantage of what we have been building," Lentz said.