Perfect Commerce, Pantellos Merge

Consolidation adds expertise in complex supply chain management to growing e-sourcing player; analyst sees pluses for customers

Consolidation adds expertise in complex supply chain management to growing e-sourcing player; analyst sees pluses for customers

Kansas City, MO — October 26, 2004 — Perfect Commerce, a provider of on-demand supplier relationship management (SRM) solutions, is set to merge with Pantellos, a leading supply chain solutions company serving the utilities and energy sector, creating what the two enablers said would be the world's largest on-demand SRM solutions provider under a deal that at least one industry analyst said should be good news for the two companies' current and prospective customers.

The deal, which still requires shareholder approval, will bring together Kansas City, Mo.-based Perfect, which arose from the merger of eScout and Perfect Commerce in 2003, and Pantellos, which was founded in 2000 when 21 utility companies in North America came together to explore the viability of an online trading community to serve their industry. The two companies have been working together under tactical alliances for about three years.

Perfect, in operation since 1999 and one of the early pioneers in B2B e-commerce, has become one of a handful of active, growing players in the e-sourcing and SRM space, acquiring in recent years PurchasePro, MaterialNet and Commerce One's exchange, which Perfect now operates under the name Open Supplier Network (OSN). For its part, Pantellos, based in The Woodlands, Texas, has evolved beyond its e-marketplace origins to gain capabilities in complex supply management processes — capabilities that Perfect clearly sees as a good complement to its core SRM capabilities.

"From Perfect's perspective, what we loved about this deal with Pantellos is that they have very, very deep supply chain expertise," said Sandy Kemper, chairman and CEO of Perfect Commerce. "We were getting a lot of requests from our clients to develop a strategic supply chain practice, which is exactly what Pantellos brings to the table." Kemper added that the two companies share the same technology platform, which will ease integration of the two providers' offerings and allow the combined company to eliminate some redundancies in their solutions.

Jim Neikirk, president and CEO of Pantellos, said that while his company has worked through third-party alliances to offer SRM capabilities in the past, the merger with Perfect would allow the Pantellos side of the business to provide SRM solutions that could be tailored to an individual customer's needs. In addition, Neikirk said that the Web-based, on-demand nature of the Perfect offering was an appealing complement to the Pantellos solutions set. "The on-demand aspects of SRM was the most flexible, best value driven way to deliver the solution to our clients," he said. In fact, companies that currently are using on-demand procurement capabilities through Pantellos already are using Perfect's solution for that functionality, according to Kemper.

The merged company will continue under the name Perfect Commerce and will maintain a focus on helping customers simplify the SRM process with the goals of reducing costs and improving operational efficiencies. The combined company will continue to serve its cross-industry Fortune 1000 customers, including an emphasis on the energy industry, where Pantellos focused in the past and where Perfect already had a foothold with some customers.

Perfect Commerce has experienced steady growth in the past four quarters, adding 42 new clients to a roster that now includes more than 160 Fortune 1000 companies. Pantellos brings to the merger more than 30 clients in the energy industry. The two companies handled more than 5 million transactions with dollar volumes of $10 billion over the past 12 months. Combined, they expect revenues of more than $30 million in 2004 and more than $40 million in 2005. Together, the company will serve more than 500 clients, including 51 Fortune 500 companies, according to Perfect and Pantellos.

The deal, Neikirk said, "creates a company that is strong financially...and positions us to be a very strong player" in the SRM space, which should help alleviate any concerns about the viability of the merged entity. Kemper also noted in an interview that the two separate companies had been cash positive prior to the merger.

Kemper will remain the chairman and CEO of the merged company, while Neikirk will be named president of the combined entity. The company will remain privately held and will be headquartered in the metropolitan Kansas City area, with offices in Texas, California, Nevada and France.

In an interview, Neikirk said that the capabilities that the new Perfect Commerce will acquire through the merger should be applicable outside of the utilities industry that formed Pantellos' initial target market. "Our service offering has really morphed into more of a horizontal play," he said, noting that fewer than a dozen of the buyers on Pantellos' staff have been strictly focused on the utilities industry, while a group of other buyers has been focusing on indirect categories such as MRO (maintenance, repair and operations), contingent labor, service management and other categories applicable to a broad range of industries.

Pierre Mitchell, an expert on sourcing, procurement and supply chain solutions with technology consultancy AMR Research, wrote in a research alert today that the merger would be "a natural extension" of the two providers' businesses "and is generally good news for existing and prospective customers."

Mitchell cautioned, "Infrastructures will also need to be rationalized to a common platform, internal reorganizations will need consolidation and business partners will need to be managed very delicately." And he noted that those customers that have been using another Pantellos partner, Frictionless Commerce, for e-sourcing will have to adjust to Perfect's solution and functionality.

However, Mitchell concluded, "Pantellos' domain expertise in utilities and complex supply management processes should be a strong complement to Perfect's on-demand SRM business model, and companies who are looking for credible options to accelerate their supply management efforts and leverage their existing SRM investments should definitely look hard at Perfect Commerce."