Saturday, December 10, 2011

Investing like it's 1999

The weekend includes an anniversary for what some thought was  Pittsburgh's great windfall,  Freemarkets 1999 IPO could come and for a brief golden moment was valued with a notional market capitalization of $8.42 billion dollars.  The intraday high would place the value more like $9.7 billion.   The firms last complete fiscal year reported $7.8 million in revenue and 234K in profit would nonetheless be worth more than a $billion more than the still combined hybrid of the entire USX corporation which I think had revenues that year of $30 billion.  Probably a bigger order of magnitude disparity between the two in employee counts at the time.

For sure some would make a fortune, but they would have had to sell pretty quickly.   When Ariba bought Freemarkets in 2004, the price paid would be the equivalent of $493 million, roughly 5% of it's peak market capitalization. Some early investors made out. In particular those folks at Goldman Sachs are not dumb. But if you bought stock on that IPO day or most any time soon thereafter I am not sure you could have avoided taking a bath.  If one did what common investing wisdom says to do and bought and held= not good.

It is not a bad story in a sense.  Lack of boom would mean less of the bust for Pittsburgh that soon followed in many regions. One of Freemarkets problems was that it came into this near the end of the frenzy.  So the IPO pop was bigger and the period before the burst was shorter.  This was all another era ago really.  So long ago that even as big a deal it was, it seems to me that Freemarkets does not have its own Wikipedia page today. Even the Pittsburgh Chair once had a Wikipedia entry :-). Still I once said that the bust could be Pittsburgh's boom.  You know..  it may have worked out.

So the irony to me in the whole Freemarkets story if you followed it at the time.  Despite its name, and its "B2B" focus at the time..the B being business..  the real buzz for Freemarkets was when earlier in 1999 it conducted a reverse auction of sorts and facilitated the purchased of just under a million pound load of road salt of all things for the Commonwealth of Pennsylvania.  That and some coal even (remember CoalHUB?!). Talk about old economy meeting new!  Pennsylvania state government and Freemarkets were way ahead of the curve in getting the public sector thinking about e-commerce and the Freemarkets IPO was in many ways a direct result of that apparent success.  So it was a public sector client spending public money that vaulted Freemarkets to initial fame and itinerant fortune.


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