eBay Bumps Up IP with Acquisition
The online auction giant will take the technology goods, but FairMarket could still make hay with its cash and NASDAQ listing.
FairMarket , a provider of online auction and promotions software, Wednesday said its shareholders had approved a sale of “substantially all” of its assets to San Jose, Calif.-based online auctioneer eBay . . Fairmarket customers include Dell, CompUSA and SAM’S CLUB. FairMarket will continue in its Woburn, Mass., location under the new name of Dynabazaar, Inc.
FairMarket owns proprietary technology to run promotional auctions, contests and games, coupons and rebates. It keeps track of loyalty points accumulated by users and manages the process of exchanging points for goods. It also provides storefront technology and commerce tools to let merchants create private-label stores within eBay or on the Web.
For example, FairMarket developed and hosted a Web site a co-promotion between Burger King and eBay, in which customers received points for purchases at the fast food restaurants which they could use to buy items on eBay. FairMarket provided technology to manage the allocation of the points, as well as tools to analyze consumer purchase patterns and demographics.
EBay has taken part in many such co-promotions in an effort to extend its audience.
“It would be an opportunity for a third party to introduce itself by promoting its brand with in association with eBay,” eBay spokesperson Kevin Pursglove told internetnews.com, “and to introduce eBay to a new audience.”
FairMarket announced the $4.5 million cash acquisition agreement in June, following a year-long relationship in which eBay used FairMarket’s platform for creating online promotions and loyalty programs. In May 2002, eBay made a strategic investment of $2 million in FairMarket in exchange for 952,380 shares of preferred stock at a per share price of $2.10.
It was a good time to sell. For the second quarter of 2003, FairMarket reported revenue of $1.5 million, up 12.6 percent, compared to revenue of $1.3 million in the second quarter of 2002. Its second-quarter net loss was $1.9 million, compared to a net loss of $7.2 million for the second quarter of 2002, thanks to the revenue increase and a decrease in total operating expenses.
The purchase involves only FairMarket intellectual property and technology assets; Dynabazaar will not be able to use them in its own business. Pursglove said eBay hasn’t yet determined which FairMarket employees it might absorb, but the company is evaluating executive, technical and administrative staff.
FairMarket’s board of directors will decide the next step for the company, according to president and CEO Nanda Krish.
“There is a transition service agreement in place where we help them move the business over to eBay in the next four months,” Krish told internetnews.com. “The next step is to close the deal.” Krish pointed out that Dynabazaar will continue to be a public company with $52.7 million in cash.
Tom Taulli, a professor of finance at University of Southern California, said that there are many companies in this situation, due to the dot-com boom and bust. Even though Dynabazaar will become a shell company, it will still report as a public company and trade shares.
“Because the IPO process is time consuming and expensive,” Taulli said, “this shell does have value — especially for a private company. A private company can bypass the arduous registration process by merging into the shell. In the end, the shell will again become a public company with operating assets.”
