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Clarus regroups to push business-to-business software

The software maker eyes an upcoming secondary public offering as a coming out party following a radical makeover.

Software maker Clarus is eyeing an upcoming secondary public offering as a coming out party following a radical makeover.

Over the past two years Clarus has unloaded its back-office software business and instead banked its future on procurement software and exchanges used for helping businesses buy and sell products online.

Clarus at a glance

HQ: Suwanee, GA  
CEO: Stephen P. Jeffery  
Employees: 343  
Annual sales: $11.5 Mil  
Market cap: $899.3 Mil  
Date of IPO: May 1998  
Ticker: CLRS  
Exchange: Nasdaq

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Bloomberg (2/14/99)
The Atlanta-based company is growing fast, taking third place in a new, up-for-grabs market led by Ariba and Commerce One. Clarus executives expect the new funding sought--a second offering of about 2.1 million shares, worth about $150 million at today's trading price--will give it the push it needs to move out of its rivals' shadows. Hambrecht & Quist is lead underwriter, alongside Banc of America, BancBoston Robertson Stephens and Piper Jaffray. The expected pricing date for shares is March 6.

Like Ariba and Commerce One, Clarus is struggling to find the right business model--the best way to charge its buyers and sellers and keep them coming back to use their exchanges. Clarus is expected to lose about $20 million this year, with profitability not expected until the end of next year, at the earliest.

"The biggest struggle is that we did not IPO as a (business-to-business software) company," Steve Hornyak, Clarus' vice president of strategy and business development, said in an interview.

"Secondary (offerings) can serve as a major branding event," adds Mike Hughes, a financial analyst at JC Bradford in Nashville. "Unfortunately, they never had their opportunity?They were an old (enterprise resource planning) company."

Both Ariba and Commerce One started from scratch as procurement software makers and boast stellar IPOs over the past year. It's been a longer, unique road for Clarus, a former middle-market enterprise resource planning (ERP) application firm that competed mainly against Oracle, PeopleSoft, J.D. Edwards, Lawson and Great Plains Software in a market for its financial and accounting software.

Ariba, which went public last June, closed at nearly 4 times its offering $11.50 price and is trading today at $212 a share. Commerce One, which followed Ariba a week later, closed at about triple its $7 asking price on its opening day of trading and is trading at $155.50 a share today.

Today Clarus holds, by company estimates, about 16 percent of the procurement software market, compared to Ariba and Commerce One, which combined control about half the market. Both Ariba and Commerce One have snagged headlines lately by landing huge Fortune 500 accounts, including deals with General Motors, services giant EDS and Dupont. Meanwhile, Clarus has announced deals with insurance MetLife and broadband company Comcast.

Despite several deals with large corporations, Hughes argues that Clarus will be more of a middle-market player.

"They aren't going after the GMs of the world," he said.

Clarus is growing quickly. Last month, the company announced new e-commerce license revenues for the fourth quarter grew 200 percent to $4.8 million. Salomon Smith Barney initiated coverage of both Clarus, Ariba and Commerce One last week, noting Clarus' appeal rests in its "increasing market momentum."

Meanwhile, Stephens recently raised its 12-month target price on the company from $57 a share to $120 a share, predicting the trading price gap between Clarus and competitors Ariba and Commerce One will close this year as investors become more aware of Clarus as a viable competitor.

Clarus' transformation cameIs the enterprise resource planning market dead? after its May 1998 IPO. At the time of its public offering, Wall Street considered Clarus an ERP company in a market that lost steam through much of last year. Companies had lost interest in huge back-office installations that often cost millions, took months to tackle and kept them from focusing on Y2K preparation projects.

Clarus missed out on the initial business-to-business IPO rush last year and saw its stock dip until it bought procurement software company Elekom in 1998.

Clarus bought Elekom for just $16.1 million in cash and stock and built its business around its software. The company now earns 90 percent of its revenues off procurement software business and has a market value of $900 million--impressive though far below that of Ariba's market cap of near $19.7 billion.

Clarus' stock climbed from $6 a share to $94 during the fourth quarter of 1999 and has now settled in the low 80s. The company is exclusively aligned with Microsoft, joining the company's BizTalk framework steering committee and allying with MasterCard and Microsoft on its WebPurchasing strategy. Another big customer is MetLife, which has 40,000 employees using Clarus software internally to drive down procurement costs.

On Wednesday, Clarus plans to announce its first offering for connecting multiple buyers to multiple sellers on its exchanges, which companies use to find the lowest prices on everything from office supplies to furniture to equipment fixing services online. Ariba bought Tradex to gain the technology capability considered crucial to capturing a critical mass of buyers and sellers on exchanges.

And still more competition exists. Start-ups RightWorks and Intelisys are eyeing Clarus' market, as are software giants Oracle and SAP.

"The market is way too young to be crowning anyone victorious," Hornyak said