William Blair Issues Business-to-Business Internet Research Report

Business Wire, Oct 19, 1999

CHICAGO--(BUSINESS WIRE)--Oct. 19, 1999--

William Blair Concludes that Fundamentals-based Investment

Still Applies, Albeit with Some Modifications to Traditional

Investment Parameters To Keep Pace with the Internet

Current market research analysts estimate that business-to-business (B2B) e-commerce will reach between $1.3 trillion and $1.5 trillion by 2003. The profit and revenue potential of existing and new entrants is startling. Valuing the investment opportunity of these companies can be equally daunting. William Blair & Company, L.L.C., the Chicago-based investment banking firm, today issued its Internet Research Report outlining the firm's proprietary framework and investment approach for evaluating the investment potential of business-to-business Internet stocks.

The study was authored by William Blair Senior Analysts David Farina and Franco Turrinelli, and:

-    Proposes a framework for categorizing, analyzing, and screening
     B2B companies

-    Provides an insightful analysis of success criteria for B2B and
     highlights differences with business-to-consumer e-commerce

-    Discusses how investors can evaluate the investment potential of
     a B2B Internet company and identify solid businesses, superb
     management, and solid financials

"We believe that the emergence of B2B e-commerce, and the technology products and services of companies engaged in e-commerce, will be one of the most important investment opportunities at the start of the 21st century," Farina said. "However, because of the immaturity of the industry, identifying long-term winners poses an unusually difficult challenge."

The report outlines the role traditional value parameters will play in evaluating future investment opportunities, while examining how to augment these traditional parameters to keep pace with the Internet. William Blair drew on its multidecade-long experience of successful business services companies to develop its framework, success criteria, and investment parameters:

-    Strong Business - "What makes a strong business is the same in
     the off-line and online world," Turrinelli said. Essential
     elements are a large market potential; leadership in the chosen
     market segment; and value-added products and services that are
     less "wow" and more about being "less expensive, better or
     faster."

-    Superb Management - William Blair modified this traditional
     parameter by conceding that a record of success is less of a
     factor in the online world. The analysts argue that - in view of
     the pace of change and the nascence of the industry - the
     dependence on management is heightened. Therefore, leadership and
     execution, a clear vision to guide the company, and the ability
     to re-invent the business to keep pace with change are key
     criteria for success.

-    Solid Financials - The most radically altered criterion in
     William Blair's evaluation of Internet stocks is the financial
     parameter. Evaluating financials is clearly not the same since
     most companies are being brought public earlier in their
     development; many business models and concepts are as yet
     unproven; and the "land grab" model - which surrenders short-term
     profitability to pursue market share - is increasingly popular.
     As a result, William Blair recommends evaluating the financials
     of Internet stocks based on above-average revenue growth that
     demonstrates a company is capturing customers and market share;
     the costs for customer acquisitions; and gross margin dollars.
     Access to capital also is essential for success.

"We believe B2B commerce will be the next wave of the Internet," Farina noted. "There will be tremendous growth and opportunities for investors, but in view of the rapid evolution of the sector and the difficulty of applying traditional investment criteria, participation will not be for the faint of heart," added Turrinelli. "Over time, earnings will - must - win out. We believe an investment approach grounded in the basics will be the best strategy: identify the best companies, remain diversified, and invest for the long-term. Our approach can add considerable value to both investors and corporate issuers."

About William Blair

William Blair & Company, L.L.C., is a Chicago-based, employee-owned investment banking firm. The firm provides comprehensive financing, brokerage, research, and investment advisory services to individual, institution and issuing clients. Since its founding in 1935, the firm has financed, researched and invested in high-quality growth companies. For a copy of the recently issued Business-to-Business Internet Research Report contact Amie Barrish at Edelman Worldwide, 312-233-1244 or amie_barrish@edelman.com.