FreeMarkets to Buy Adexa, Challenge Competitors

FreeMarkets Inc. said Thursday it plans to buy Adexa Inc., a Los Angeles-based maker of e-business software, for more than $380 million in stock in a move that would put the online software auctioneer in greater competition with rivals such as I2 Technologies Inc.

FreeMarkets makes auctioning software that enables customers to find suppliers and buy direct goods or raw materials over the Web.

According to Forrester Research, purchasing executives plan to buy almost half of their raw materials online by 2002.

Once customers have found those suppliers, Adexa’s supply chain management software allows them to manage the buying process. Suppliers in turn are able to track demand, plan production and more efficiently manage inventory levels.

Adexa, which had $50 million in revenue in 2000, should boost FreeMarkets’ revenue and margins this year and will add to revenue, margins and operating earnings per share in 2002, said FreeMarkets Chief Financial Officer Joan Hooper.

FreeMarkets said it would exchange 17.25 million shares and options for all shares and options of privately held Adexa. FreeMarkets shares closed up $4.19 at $23.94 in Nasdaq trading, giving the deal a value of $413 million.

The Adexa acquisition brings FreeMarkets in greater competition with rival supply chain management vendors, such as I2 Technologies and Manugistics Group Inc., as well as e-commerce giants Commerce One Inc. and Ariba Inc., all of which are rapidly building out their direct procurement and supply chain offerings.

I2 acquired Aspect Development for its supplier sourcing technology last year, and last month Ariba snagged Agile Software Corp. to get its hands on the company’s business-to-business collaboration software.

FreeMarkets Chief Executive Glen Meakem said, however, that none of those vendors could yet offer an integrated direct procurement and supply chain management solution.

“No one has really successfully integrated sourcing with supply chain planning and collaboration yet,” Meakem said. “We’re going to be the first to market with that integration solution.”

Until recently, analysts said, Ariba had been seen as most likely to acquire Adexa.

“Adexa was seen as one of the top private companies in the supply chain space, which is why there were lots of rumors that Ariba was planning to acquire it,” said George Santana of Wedbush Morgan Securities. “So FreeMarkets’ acquisition leaves the question of what Ariba’s going to do next right up in the air.”