Cbex.com wants to jump-start the stagnant business of online mergers and acquisitions. Now, if only Wall Street would come around.

One might think the Internet offers the ideal medium for mergers and acquisitions: Companies for sale match with those looking to buy.

So far, it hasn't happened that way. While Internet companies frequently turn to investment banks for M&A deals, the banks themselves have turned a cold shoulder to the Internet. Bankers roll their eyes at sites like eMergers.com and MergerNetwork.com, which try to make M&A deals happen. After several years, few sites are more than information clearinghouses, similar to classifieds sections for corporate lonely hearts. None of the M&A sites will disclose how many transactions they helped bring about, but most say the actual mergers happen offline.
Now, a Seattle-based company, Confidential Business Exchange, or Cbex.com, is building a M&A exchange that it plans to roll out this summer. But don't expect to read much in the media about the deals that Cbex plans to arrange. Cbex is focusing on companies with annual revenues of $1 million to $100 million, a segment that it says produces about $100 billion worth of M&A transactions a year.

Cbex says it soon will be issued a patent on a method of conducting confidential mergers and acquisitions negotiations over the Net. The company plans to use the patent as a foundation for a network of investment and commercial banks, insurance companies and accounting firms – much like e-commerce company Priceline.com used its patents to cement ties with airlines.
Cbex CEO Craig Breed says one of the top Wall Street firms has promised to invest $5 million in the venture. But that firm, which Breed declines to name, is apparently waiting for other top firms to join in negotiations.

It may take some time. Despite the innovative nature of Cbex's plan, several M&A experts interviewed doubt that online M&A transactions will become much of a trend.

"In my opinion, it will not change the way deals get done," says Basil Horner, a Tucson, Ariz.-based investment banker with U.S. Capital Partners, which specializes in mergers of midsize companies. "You can't have management meetings online. It's not like selling stock."
For Breed, this is exactly the kind of catch-22 that has kept the Internet from playing a role in the burgeoning M&A industry: Wall Street thinks mergers can't work online so they stay away, ensuring that mergers won't work online. "The M&A space online has not been cracked yet because the trusted names in the business are not there yet," Breed says. "The big carrot for all of this is the patent."

Breed says key investment banking firms are cooperating with Cbex to help design the system because "they don't want to have some third party do it for them." Major Wall Street firms, including Goldman Sachs and Merrill Lynch , would neither confirm nor deny that they're participating in Cbex's planned exchange.

What such exchanges will find hard to offer, say investment bankers, are the connections, the experience and the advisory expertise that the middleman offers. "Companies are about people," says Alec Ellison, a managing director at Broadview, an M&A banking firm specializing in technology companies. "In people-intensive businesses, significant personal interaction is required. The more face-to-face interaction that is required between the principals, the less likely you can do that over the Internet."

This doesn't mean that Cbex's exchange won't work; it just won't be in demand among companies that can afford to hire human capital – the middleman that the Net was supposed to displace. "It's more of a tool. I don't think you're going to take the relationship and advisory side of it all online," says Byron Roth of investment bank Roth Capital Partners. "If it works at all, it's going to work for a very small company."
 

Source:  Linda Berlin, The Standard, March 27, 2000