Liquidation firm seeing more dot-com clients
Liquidators that usually work with brick-and-mortar companies are increasingly getting a new kind of client: struggling dot-coms.
iSolve, which specializes in selling excess inventory, said their latest wave of clients has been dot-coms on the skids.
These companies are not actually out of business, but instead are trying to raise enough cash to keep paying their bills and avoid slipping into bankruptcy. Once in bankruptcy, a company's assets are sold, and the proceeds are divided among creditors.
Some of the more desperate clients, however, go so far as to offer iSolve their capital infrastructure--like desks and computers--for liquidation.
"This is a business we are just getting into, and we see a tremendous opportunity for iSolve," said Stuart Kessler, iSolve's chief operating officer.
The recent slump in e-tailing stocks has triggered an avalanche of struggling or failed dot-coms. Investors are watching companies with a more skeptical eye, and much of the funding has dried up for all but the most promising companies.
iSolve is stepping into the gap, making struggling dot-coms a central part of its strategy. It guarantees that it will either sell the inventory offered within 30 days or make an offer itself.
Other companies, such as Tradeout.com, are following suit and working with Internet firms to sell excess products.
But with the list of Internet companies in financial turmoil growing daily, iSolve may be on the verge of striking it big by capitalizing on their troubles.
"Everyone is preying on these companies; it's a Darwinian marketplace," said Sandeep Thakrar, a partner at venture capital firm Katalyst.
iSolve said it has signed up more than 20 Internet retailers, business-to-business players and content firms. None of the companies are publicly traded, iSolve representatives said. The companies have asked iSolve to sell not only excess inventory, but in some cases, their production and advertising time.
By going through a third party like iSolve, the companies avoid the stigma of revealing that they are trying to sell assets and still get the quick cash.
"Even if they could sell out their inventory at 30 cents on the dollar, that is better than getting nothing and definitely better than trying to keep the store open and funding the cost of running the business," said Jeetal Patel, an analyst at investment bank Deutsche Banc Alex Brown.
iSolve refused to identify any of its online clients, saying the companies wanted to remain anonymous out of fear that the negative association might scare off investors.
Some venture capitalists and equities analysts noted that many traditional retailers and manufacturers also unload excess inventory to minimize warehousing and purchasing costs. Retailers usually get a discount for buying larger quantities, some of which they sell to liquidators. Manufacturers get a discount by factories for greater production volume, some of which they also unload to liquidators.
Liquidations are part of the business world, while selling capital infrastructure is seen as a desperate measure, analysts said.
"Getting rid of excess inventory might be viewed as somewhat positive," Patel said, "but probably still shows they are speaking from a weakness perspective rather than a strength perspective."
iSolve's guarantee to make an offer for the goods if they have not moved within 30 days has its small print, of course. The company only promises to make an offer, which most likely will be well below the wholesale price.
"We are buying something that hasn't sold, so we will offer a price where we won't be losing money," Kessler said. "That gives us the proper amount of headroom to resell the product."