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Exchange hits the Street

The Boston-based maker of marketing and customer management applications files an initial public offering with 3 million shares up for grabs on Nasdaq.

Despite the bumpy ride lately for business software firms' stock, Exchange Applications has decided hit the Street.

The Boston-based maker of marketing and customer management applications filed an initial public offering yesterday with 3 million shares up for grabs on Nasdaq. Business software stock in general has taken a pounding lately as investors anticipate sales to slow for most vendors from the sky-high levels of years past.

Exchange's stock was offered at $11 a share with an expected price of $8 to $10 a share. That price rose to $16 a share in early first day trading.

Company executives said the proceeds are for general corporate use including working capital, possible reductions of debt, and potential acquisitions.

But it could also make Exchange an attractive candidate for acquisition.

Exchange plays in an increasingly competitive field that has even the market leaders struggling and running for cover.

In fact, Vantive, one of the top players, last week filed a stockholders rights plan. Analysts said the move was not only to protect its current shareholders from a hostile takeover but to also make Vantive's sagging stock all that more attractive. Vantive's stock is currently trading at less than $8 a share.

"It's likely an attempt to get the stock price up by making people think they are getting acquired," said Steve Bonadio, analyst at the Hurwitz Group in Framingham, Massachusetts. "That is not to say that it is not important to protect your shareholders in a market that is surely going to consolidate. It's going to be tough for these [front office vendors]. It's not a very bright future for them."

Bonadio explained that as the enterprise application giants like SAP, Oracle, and Baan increasingly encroach on this market space, the smaller, niche vendors like Exchange will need to merge with the enterprise vendors or others to survive. They may also need to combine forces with supply chain vendors like Manugistics or I2 Technologies to withstand the onslaught by SAP and company. Supply chain management is another market into which the enterprise application vendors are stretching their reach and forcing consolidation

Some players, like start-up and Exchange competitor MarketFirst, aren't expecting a long life on their own. MarketFirst CEO Pete Tierney freely admits he sees about a two-year window for his company before it is likely to be acquired.

Tierney even turned to SAP for a large chunk of financing to get his company off the ground. SAP, with its huge cash reserves just waiting to be spent, has a history of investing in companies to help technology development along. It has gone ahead and bought up a few of those companies to enhance its own software.

Analysts agree with Tierney, a former Oracle executive, that most of the front office and supply chain vendors have about two-years before serious consolidation takes place. SAP is on a three-year schedule to get its software for these markets at a level equal to or greater than what the niche players now offer.