CombineNet Closes a Down Funding / Buy-Out Round Following Working Capital Challenges

CombineNet closed a down funding round this week (actually, a majority sale of the company), following months of recent internal turmoil, including rumored financial challenges -- that Spend Matters confirmed with multiple sources -- including missed payroll and other related working capital issues. The press release paints a rather successful picture of the funding close, noting that "private equity firm Alta Communications, along with previous CombineNet investors, is providing a significant capital investment that will enable it to drive innovative product development and growth in the delivery of eSourcing and supply management solutions ... With this investment, Alta Communications has acquired a majority stake in CombineNet, becoming the primary investor alongside previous investors and CombineNet management. The capital infusion will provide financial support to fuel the company's growth in a field that has found increasing interest from the corporate ranks." But there is more to this deal than meets the eye.

CombineNet had a reduction in workforce this week, prior to the deal announcement. Some close to CombineNet have suggested that the funding was contingent on the layoffs in order to achieve a slower burn rate (though we have not confirmed this). In fact, CombineNet scorched through much of its available working capital in recent weeks, resulting in challenges making payroll, according to a number of sources Spend Matters spoke to. Spend Matters believes that the timing of the investment is not coincidental and the precarious working capital situation might have provided the investors with even more favorable terms.

CombineNet had been an asset actively marketed by its investors in the past two quarters. Many of the usual big-name providers in the Spend Management sector had considered the M&A deal (which was ultimately done at a multiple less than 2009 revenue). In addition, a workforce, warehouse and transportation management provider without similar capabilities to CombineNet had also considered the transaction (and would have been a good fit for the technology and services assets). However, Spend Matters would liked to have seen a company like Ariba or IBM purchase CombineNet because of their ability to provide global exposure for the rich technology and services asset in CombineNet's possession. Yet the current funding round / buy-out by Alta is a positive development because it ensures the company will remain viable versus being liquidated in an asset sale.

Stay tuned for further coverage as this story develops, including the product direction (i.e., mix of software and services) CombineNet will take following the workforce reduction and investment.

Jason Busch

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