Missouri-Based Online Marketplace to Buy Largest Competitor.

By David Hayes, The Kansas City Star, Mo. Knight Ridder/Tribune Business News

Dec. 20--EScout, a Lee's Summit-based online marketplace that links business buyers and sellers, announced a deal Thursday to purchase its largest competitor.

The Internet company formed by UMB Bank four years ago purchased Commerce One.net, a large online marketplace owned by Commerce One, a once highflying publicly traded e-commerce software company based in Pleasanton, Calif.

Alexander Kemper, chief executive of eScout, said the acquisition would make eScout the largest business-to-business marketplace in the world. The combined company would have more than 25,000 corporate customers and $2 billion in annual sales. The deal is expected to be completed early next year.

Commerce One.net handled almost 900,000 transactions with gross sales of more than $1.5 billion during the first nine months of the year, the company said. EScout does not disclose sales revenue.

The acquisition includes Commerce One.net's contracts with more than 1,500 companies that buy and sell through the marketplace.

Commerce One, which took a minority ownership interest in eScout in March 2000, increased its existing ownership share as part of the deal. No cash changed hands, Kemper said.

"EScout and Commerce One.net are the two leading exchanges in North America providing supply-chain services to Fortune 2000 clients," Kemper said. "The combination of Commerce One.net's great clients, people and technology with our 25,000 customers ... should provide both Commerce One.net customers and our existing eScout customers with new business opportunities and services."

Mark Hoffman, chief executive of Commerce One, said selling the online marketplace would allow his company to focus on software development. He said the marketplace was set up in 2000 to validate the marketplace concept and showcase Commerce One's software.

Commerce One.net's operations will be moved to Lee's Summit. Kemper said eScout, which has 65 employees, may add a dozen or more employees as a result of the acquisition.

Kemper said the acquisition would accelerate eScout's push for profitability by at least six months. The company now will be cash flow-positive during the first quarter of 2003, he said.

EScout makes money by taking a small percentage of each sale.

Commerce One was once one of the Internet's hottest companies, riding a multibillion-dollar wave as it benefited from hype over the potential for huge profits as corporations moved their business operations online. Investors believed marketplaces would make money by helping corporations save money as they automated the buying and selling process.

Commerce One's bubble burst, however, along with the rest of the Internet economy when those profits didn't materialize. Commerce One once had more than 3,700 employees and now has about 700 employees. The company's stock, traded on Nasdaq, has lost more than 99 percent of its value since peaking in December 1999.

EScout's focus has changed since the company was formed in 1998. Kemper launched the Internet company to provide online purchase services for small and mid-size banks and their customers.

Backed by more than $60 million in venture capital, eScout now focuses on larger, "Fortune 2000" companies.

Kemper said he believed the outlook for the online marketplace business was good. He said eScout signed up more corporate customers during the third and fourth quarters than "anything we've seen in our company's history."

While the business-to-business market was among the biggest losers when the Internet economy failed, Kemper said he believed the industry was poised to grow.

"It's been a very tough world to be in," Kemper said. "Folks overestimate the speed of change in the first three or four years and underestimate the growth 5 or 10 years out." The business-to-business market is about to turn the corner, he said.

As the market matures, Kemper said he believed existing marketplaces would consolidate. The deal with Commerce One, Kemper said, "establishes eScout as a consolidator."

"We fully expect to make a number of significant acquisitions in this space," Kemper said. "We have had discussions with a number of marketplaces."

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(c) 2002, The Kansas City Star, Mo. Distributed by Knight Ridder/Tribune Business News.

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