CUPERTINO, CA and HORSHAM, PA. -- December 19, 2000 -- High-technology marketplace Converge (formerly known as eHITEX), and e-business enabler VerticalNet announced a definitive agreement for Converge to acquire NECX, a wholly owned subsidiary of VerticalNet. NECX operates a global trading exchange that matches buyers and sellers of electronic components and computer systems, and trades in excess of $1 billion annually in North America, Asia and Europe. Converge also announced that it has chosen VerticalNet Solutions, a division of VerticalNet, to provide the technology backbone for its trading operations. As a result of the acquisition agreement, VerticalNet will receive a 19.9 percent equity interest in Converge and a seat on its board. The companies expect the acquisition to close during the first quarter of 2001.
The acquisition of NECX establishes Converge as the global trading leader, making markets in over 180 product families, with logistics and operational capability to buy, sell and move products around the world, stated Robert Lewis, CEO of Converge. NECX brings 20 years of domain expertise and is a trusted intermediary for the thousands of high-technology companies worldwide. The commitment of our founders, the recent delivery of our first set of collaboration tools and the addition of NECX's online trading capability and infrastructure moves us into an era of true value creation for companies throughout our industry.
Converge was founded in May 2000 by 15 leading high-technology OEMs, contract manufacturers, component manufacturers and distributors to deliver supply chain efficiencies using Internet technology. This industry depends on the collaboration of hundreds of companies to bring high-value products to market, explained Lewis. Our mission is to reduce our founders' $200 billion annual cost of direct materials by five to 10 percent over the next three years using a straightforward approach build deeply liquid markets for direct goods and services, offer new collaboration tools to improve efficiency and operate a confidential, trusted environment.
Our equity ownership in Converge enables VerticalNet and its shareholders to continue to benefit from our leadership position in the electronics component marketplace, said Joe Galli, CEO of VerticalNet. In addition, our agreement to provide Converge with our direct material procurement technology securely positions VerticalNet Solutions as the emerging leader in this high-growth sector and accelerates our go-to-market initiatives. This will sharpen our focus on VerticalNet Solutions and on VerticalNet Markets, our strategic business unit that operates 58 industry-specific marketplaces, continued Galli. Focusing on these two complementary businesses will enable VerticalNet to continue its rapid growth trajectory while driving us toward profitability.
In a separate agreement, Converge has entered into a three-year software licensing and professional services contract with VerticalNet, valued at $107.5 million, whereby the VerticalNet Solutions platform will serve as the technical backbone for Converge's trading operations. An additional component of the agreement includes a commitment to link Converge with each of the 14 technology-focused verticals in VerticalNet Markets, thus creating a linked web of content, community and commerce between VerticalNet and Converge.
Lehman Brothers Senior Research Analyst Neil Herman said, The winner in direct procurement will be the winner in procurement overall. The direct procurement market is much larger than indirect and the complexity of the problem is much broader requiring deep integration into the industry value chain. Given the complexity of direct procurement in electronics, the player who solves this problem is poised to address the issues of any industry.
Tom Berquist, leading Internet industry analyst with Goldman Sachs, said, This confirms our view that industry-led exchanges will emerge as viable businesses and evolve into industry operating platforms that serve the trading and collaboration needs of specific supply chains. We continue to be impressed with the speed at which Converge is assembling the necessary assets to establish itself as a leading example of this emerging business model.