The Day Ahead: ICG's IPO stable mixed

With business-to-business stocks and the IPO market expected to rebound this fall, you'd think it would be a fine time for Internet Capital Group shares. But concerns about cash and a so-so initial public offering lineup are holding ICG back.

At least the cash concerns should be resolved shortly. Analysts said ICG, an Internet incubator, is likely to hit the road shortly to talk about a new strategy that consolidates and organises its portfolio companies into hub categories. ICG is also likely to raise more cash via a private placement in the next two months, said analysts.

Raising cash is ICG's biggest worry right now. The company has about $562m (£395m) in cash to deploy. ICG has indicated that it will invest $250m a quarter for the next two quarters. Patrick Walravens, an analyst with Lehman Brothers, said a cash infusion from either an existing partner or big investor would allay a lot of the concerns about ICG.

The other concern surrounding ICG is its IPO lineup. ICG didn't have any "liquidity events" in its second quarter. Although incubators can do nicely by merging and selling portfolio companies, there's nothing better than an IPO homerun to get attention.

And ICG doesn't have any homeruns on deck. In fact, PaperExchange withdrew its IPO filing on Tuesday. ICG, however, boosted its ownership stake to 83 percent from 20 percent.

ICG currently has five companies registered for an IPO -- ClearCommerce, CommerX, Context Integration, LinkShare, and ServiceSoft. Of that bunch, LinkShare looks like the favourite to go public by the end of 2000. Don't hold your breath for the contenders.

According to regulatory filings, LinkShare, which operates and enables commerce networks, is offering 4.7m shares between $10 and $12. LinkShare's IPO has been in registration since February. ICG will own 32.7 percent of LinkShare following the IPO.

Although analysts said LinkShare is likely to go public, the financials still reveal a young company. For the six months ending December 31, the company reported sales of $2.6m and a loss of $3.2m. More recent figures weren't available.

ServiceSoft, an e-services company, is another likely candidate to go public, but ICG only has a 4 percent stake in the company. The company is offering 3.5m shares expected to price between $13 and $15. For the six months for June 30, revenue was $12m and a loss of $26.5m.

The rest of ICG's IPO prospects aren't likely to make it public in 2000 if at all. ClearCommerce, an e-commerce transaction management software, hasn't set its IPO terms. The company reported 1999 sales of $5.3m and a loss of $14.6m. CommerX registered in January, but hasn't updated its filing. Context Integration hasn't set IPO terms.

ICG management estimates it has 12 companies in the "developed stage" that can go public in 12 months. ICG Commerce is a likely IPO candidate for 2001.

But that lineup isn't going to impress investors. Walravens said ICG is likely to either merge its portfolio companies or sell them outright. The best example of how a sale can pay off is Tradex, a ICG portfolio company that was acquired by Ariba. As of June 30, ICG had $270m of Ariba stock.

"There are three ways to increase the visibility of the holding company," said Walravens. "Take a portfolio company public, merge it into a public company or sell it. With ICG, we're going to see a lot of two and three."

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