Netstore plays down reports of a takeover

The first ASP to win gold certification for Exchange 2000 from Microsoft says rumours of a sale are premature

Europe's largest application service provider (ASP) and the first company to become a gold certified ASP by Microsoft may up for sale, but that is only one of several options the company is pursuing.

A spokesperson for Netstore, which was founded in 1996 and achieved a London Stock Exchange listing in April 2000 that raised £40m, was quoted on Friday as saying that the company would consider any takeover bids. Its stock surged 16 percent to just over 18 pence on the news -- still well below its 2001 peak of 81 pence. But yesterday the vice president of marketing, Graham Hardiman, sought to play down the likelihood that the company would be acquired, saying that all options are being considered.

"One option is to acquire other companies, a merger would be another option, or we could carry on as we are or we could be acquired," he said. Netstore's preference would be to acquire another company. "We looking for a company that has an established customer base or an established technology that would fit alongside ours," he added, but said he could not be more specific.

Netstore, which counts Cisco among its customers and serves 32,000 seats throughout Europe, has found customers easy to keep once they try the ASP model, but customer acquisition costs remain high and the market has been slow to take off.

A question mark was raised over Netstore's future last week when the company announced losses of £11.8m for the year to 30 June, and Meryll Lynch now rates the company as a likely candidate for a merger or acquisition in the near future. Turnover more than doubled to £3.56m from £1.37m for the previous year, and the company has £25m cash in the bank. Following the results announcement, the company's chief executive, Gary Smith, stepped down and was replaced by chairman Paul Barry-Walsh.

Hardiman said the ASP market has developed slower than the company expected. "The market is still in its early stages -- there is no doubt about that," said Hardiman. "We are tending to see medium-sized companies adopt the model -- 500 seats is the sweet spot -- but once we get the momentum up the explosion could happen fast. We want to be well-positioned for that."

Netstore launched in 1996 and from its beginnings as an online storage vendor was one of the earliest companies to offer applications over the Web as an application service provider. The company specialised in delivering Microsoft Exchange 2000 over the Internet, and earlier this year launched a service providing wireless access to the email system for mobile phone users.

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