BOSTON -- The PC industry-led exchange eHitex announced today that it would acquire NECX.com LLC, a Peabody, Mass.-based subsidiary of e-marketplace technology provider VerticalNet Inc.
In a separate announcement, eHitex said it will change its name to Converge Inc. As a result of the acquisition agreement, VerticalNet, Horsham, Pa., will receive a 19.9% equity interest in Converge, $60 million in cash, and a seat on Converge's board. The companies expect the acquisition to close the end of January, executives said.
Additionally, Converge has entered into a three-year software licensing and professional services contract with VerticalNet, valued at $107.5 million. Under that arrangement, the VerticalNet Solutions platform will serve as the technical backbone for Converge's trading operations, and will link Converge with 14technology-focused verticals run by VerticalNet.
VerticalNet bought independent distributor NECX in November of 1999 with the intention of creating a large online trading community for engineers and component buyers (see Nov. 16, 1999, story).
Most recently, NECX primarily focused on spot market purchases, but had planned to expand its non-contractual buy-sell transaction capability and was building its own portfolio of services through this year's acquisition of the American IC Exchange and Real World Electronics Inc. (see Feb. 22 story).
The latest announcement is expected to boost Converge's trading infrastructure and help the exchange, which was created in May and is headed up by Compaq Computer Corp., Hewlett-Packard Inc. and 13 other leading industry players, enhance its collaboration services, said Robert Lewis, Converge's chief executive, who took the helm in November.
NECX's 20 years of domain expertise, its trading platform and related technology, critical mass of users, and robust database of component information will give Converge a stronger position in the emerging and evolving exchange area Lewis told EBN.
"When I stepped into the job of CEO of eHitex eight weeks ago, I started to evaluate what strategic assets needed to be brought to the market," Lewis said. "Converge and NECX were in discussions about forming a partnership, but as we dived into the talks it became more obvious to us that we should bring these capabilities together. It was a make versus buy decision."
The equity ownership will make VerticalNet the exchange's single largest shareholder, said Robert Damron, an analyst with Tucker Anthony Cleary Gull Inc.
"It seems to be a good deal for Converge," Damron said. "This will accelerate Converge's components procurement program."
On a broader scale, the acquisition is in sync with analysts' projections that the number of business-to-businesses exchanges that have emerged in the last year will dwindle as the market matures, consolidations based on technology and services offerings take place, and exchanges shop around for top-name players to add to their partnership roster.
Converge's move is the latest in a string of recent announcements that are following those predictions. "This is an example of where the acquisition was based on a combination of technology and service offerings," Lewis said. "What got us excited about the deal was the new trading mechanisms NECX has put in to go beyond the spot market and break into the open market. We expect to see NECX be the basis for our global trading platform and help Converge address more than spot market purchases."
For VerticalNet, the equity position in Converge and the licensing arrangement positions VerticalNet squarely in the evolving space of direct materials procurement technology, said Joe Galli, chief executive of VerticalNet.
"In addition, our agreement to provide Converge with our direct material procurement technology securely positions VerticalNet Solutions as the emerging leader in this high-growth sector and accelerates our go-to-market initiatives," he said in a statement.
As a joint venture partner with VerticalNet in NECX Asia, Sumitomo Corp. will join the 15 founders of Converge as a shareholder and hold an advisory board seat.
--Additional reporting by Bolaji Ojo.