For Better or for Cash

Financially strapped software makers are being courted and carted away.

Last year, B2B companies raised record amounts of money. This year, theyre cashing in.

The pace of consolidation in the B2B space has picked up in the last month and it wont slow down any time soon, according to industry analysts.

"There will be a lot of mergers and acquisitions everywhere this year, but it will hit B2B hard because it was so overfunded last year," says Ken Andersen, managing editor at VentureWire, an online newsletter that tracks venture capital spending. "Probably 90 percent of B2B companies will sell because the prospect for liquidity in the public market is zero."

That makes for some real bargains. Commerce One Inc., for example, plans to buy collaborative-commerce software maker Exterprise Inc. for about 7.5 million shares of Commerce One stock, valued at about $78 million. Thats about twice what Exterprises investors put into the company, says Andersen. Thats a decent deal in this depressed market, but nowhere near the tenfold return that venture capitalists shoot for, he adds.

Besides bargain hunting, the bigger vendors like Commerce One also are being driven by a need to fill out their product portfolios. "The first stage [of B2B] has been building out the fundamental e-commerce infrastructure," noted Mark Hoffman, chairman and CEO of Commerce One, during a conference call announcing the Exterprise acquisition. "The next stage will be a new class of application that sits between companies and tightly connects trading partners. We believe these apps will be critical to moving collaborative commerce onto the Internet."

That move to collaborative commerce drove Commerce One rival Ariba Corp. to target Agile Software Inc. The stock deal, valued at $2.55 billion when announced in January, is now worth less than $1 billion, and it set off the recent mergers and acquisitions frenzy in the B2B space.

So, whos next? "Almost anyone could be next, given the right deal," says VentureWires Andersen.

One hot area is B2B integration. Infrastructure-management firm Peregrine Systems Inc. plans to acquire Extricity Inc., a maker of relationship-management software that automates business processes between trading partners, in a stock swap valued at $168 million.

Additionally, i2 Technologies Inc., the supply-chain management software maker, has targeted Net market platform maker RightWorks Corp. and aligned with webMethods Inc.

That partnership between i2 and webMethods will push Ariba and Commerce One to buy another B2B company, probably Vitria Technology Inc., says Simon Yates, an analyst with Forrester Research. BEA Systems should acquire Attunity Ltd., a business-process automation firm, he adds.

But that will hardly be the end of the current B2B marriage-go-round.

Says Andersen: "It will get worse before it gets better."