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VerticalNet grows through acquisitions

The company has made several acquisitions since its February 11 IPO, and it plans to make a half-dozen more, says its CEO.

SAN FRANCISCO--Now that it's public, VerticalNet is using acquisitions to grow beyond the industry-specific Web marketplaces that it runs, chief executive Mark Walsh said today.

VerticalNet has made several acquisitions since its February 11 IPO, and Walsh said a half-dozen other deals, ranging from existing Web sites to technology companies, are in the works.

"You can expect to see more acquisitions from us," Walsh, a former America Online executive, told investors at the Hambrecht & Quist investor conference in San Francisco. VerticalNet calls itself "the largest operator of business-to-business e-commerce sites."

For currency, VerticalNet has $57 million in the bank from its IPO, as well as shares that closed today at 120.625, off 10.75 from yesterday's close. The stock went public at 16.

Although Walsh declined to name acquisition targets, he said they include companies with industry-specific content, audiences, technology, or transactional systems. VerticalNet is looking for technology that can rapidly format product catalogs into online catalogs.

VerticalNet will target acquisitions in fragmented industries that have frequent new product introductions. It also looks for international activity and likes industries with active trade shows because companies in those verticals are accustomed to spending money on marketing.

VerticalNet's business plan mimics that of one of the earliest business Web sites: Industry.Net. After it was founded in 1995, Industry.Net (which later became Nets Incorporated) was sold to former Lotus chief executive Jim Manzi, who poured millions of his own money into the site before it filed for bankruptcy in May 1997.

"I thank Jim Manzi every day," said Walsh, "His bankruptcy with fanfare scared everyone else away from this space for a year and a half." Industry.Net was eventually sold out of bankruptcy to Perot Systems, which in turn sold it in November 1997 to electronic publisher IHS Group.

VerticalNet's biggest splash since its IPO came last week when it launched business auctions on 15 of its sites to let users get rid of surplus inventory. VerticalNet doesn't charge for listings but collects a percentage of any sales.

E-commerce revenues play a key role in VerticalNet's strategy. Earlier this month it signed a multimillion dollar, multiyear deal with card issuer First USA. First USA will be the exclusive issuer of Visa corporate purchasing cards on VerticalNet's new business services center, which will offer office supplies, shipping, consulting, and corporate purchasing services.

Walsh told investors VerticalNet will become a "virtual distributor" for goods online. The company also runs Web storefronts on its sites for companies, charging them each $6,000 a year. It collects fees for sending prospective buyers from its marketplaces to others' storefronts.

VerticalNet's communities range from Water for the water and wastewater industries to Property and Casualty Online for the insurance industry and Meat and Poultry Online.

VerticalNet groups its industry sites into seven categories: communications, services, food and packaging, environmental, advanced technologies, and science.