Verticalnet's Finances: Going Vertical?

A Spend Matters reader -- who works for a Vertical competitor -- forwarded me a link to this recent Verticalnet financial disclosure / statement. Essentially, the primary Verticalnet noteholders denied what management was seeking -- to assign a secondary lien against VERT's assets specific to the subordinate holder. The result of this is that their interest rate on debt will now go from 6% to 12% per year. They will also have to pay back $5.3M on 1/31/2007 (rather than in 2008) for a note valued at $4M with proceeds of $3.7M (after $300K commissions/fees/legal) realized by the company.

The readers' analysis of the situation is not promising: "Since the primary noteholders were first in line I wonder why they would say no to what management wanted to do here ... seems kinda weird. The original deal was bad enough with a 28% year implicit rate of interest ... Because of this basically Verticalnet received $3.7M on 5/18/2006 which has to be repaid as $5.3M on 1/31/2007 and to add insult to injury they have to pay 12% interest on top of that for the 9 months they had that money in place."

On one hand, I feel bad that Verticalnet's finances are out in the open for others to pick apart. But on the other, I could also argue how bad the situation is for shareholders who deserve a public voice. Regardless, their financial situation masks what is really a deep and broad product suite. Getting back to what matters for Spend Matters readers, in my view, it looks unlikely that they'll be able to survive independently into next year unless they can work some financial miracles. Still, their Spend Management suite and supporting services -- especially on the spend analytics front -- could be a good fit with a number of other providers in the market. And at least one large "SRM" provider in the sector who lacks solid analytics and visibility capability has its US headquarters only a few miles away ...

Jason Busch

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