Sunday, February 5, 2012


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We conclude that rightly Internet Securities has accepted the offer of $4 million for 80% of the company by Euromoney PLC. The offer covered the market value of the company which at the time of acquisition had a total post money valuation of around $50 million. Another favorable part of the deal was the fact that I.S. management has ensured the option at any given time to spin out the company and go public. In retrospect, the decision proved out to be correct since most of the dot-com companies who went public at that time, by 000 have lost on average more than 60% of their market value.

Apart from that, this deal represented not just incremental evolution, but a fundamental transformation of the company, to enhance its sustainability by teaming up with Euromoney PLC to block competition.



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Internet Securities Inc. (I.S.) founded in June 14, by the brothers Gary and George Mueller. Their idea was to organize a company that provided hard-to-find financial, business and political information to business professionals, but with a focus to emerging markets where it was very difficult to find reliable information

Mueller brothers drew from a family with entrepreneurial spirit, which led the company at the beginning. Their initial investment was $145,000 from within their family circle.

The company started at Pittsburgh, Pennsylvania and start developing its technical infrastructure, while at the same time Gary Mueller start negotiated deals with information providers in Poland (Poland was the first emerging market that I.S. choose to enter).

Within six moths of the official product launch, the company began to struggle with issues of rapid growth and an increasingly complex business. The company grew from 6 people in June 15 to 10 by September 16. By 18, IS had grown from a single location in Poland to over 175 people in 18 offices around the world. IS approached several “angel “ investors to secure the funding of the company that would need to launch the service. Throughout the years from 15 to 18, the business was growing too fast and needed additional funding for the technical infrastructure as well as to add business value. Gary Mueller was seeking ventures for funding but from different types of investors. The first round was well-regarded from people financial or information services. The second and the third round was people with specific expertise and securing financing. With that model IS in spring 18 appears with a post-money valuation of $50 million with a price per share $10.



I.S. has limited bargaining power over their customers, since although they offer a differentiated product for business professionals which are based in both developed and emerging markets and are eager to gain access to accurate, reliable and up-to-the-minute information on the emerging markets sector, the nature of the product is highly imitable. I.S. offers information in a modular way with a series of increasingly valuable enhancements which drive the customers to a repeated purchase behavior. Nevertheless, there are large companies in the field of financial information providers (Reuters, Bloomberg, e.t.c) which if they want to can offer the same product at a more competitive price. Also these companies will be able to attract other companies more easily due to the fact that they have higher brand equity. Thus switching costs for I.S. customers are relatively low.


The key objective was to gather good information as quickly as possible and presented in a format that people wanted. I.S. had extensive and exclusive contracts with the information providers, but they were very difficult to be obtained. Moreover, while most online financial services charged information providers to sell their content, I.S. paid most of the information providers an average 15% of subscriber revenues.

Internal Competition

When Internet Securities was launched in14, they were considered among the earliest internet pioneers. The Muellers brothers had a vision that the internet would become an important channel for conducting business in the future. They hoped that early entry would give them the time needed to build their business before established competitors were ready to respond.

Direct competition includes all companies in the internet industry. These companies could potentially copy the IS services/products , which means that IS could be exposed to imitability ( i.e. emerging market information can be copied, substituted and leapfrogged by the competitors).

Indirect competition encompasses “brick-and-mortar” companies that in 14 had never heard of the internet and those that had, considered it a “toy for techies”. In 18, they have realized that they have to deal with the emergence of the internet.

Threats of new entrants

The threat of new entrants is extremely high because the initial investment is very low, the specific business model is imitable and switching costs for customers are low.

Threats of Substitute Products or Services

I.S. is facing the threat of substitute products or services like financial newspapers and magazines (ex. Wall Street Journal, The Economist) that offered from giant media companies and television financial shows (ex. CNN’s Insight show).

I.S. has a competitive advantage compare to the media giants and television shows; because, they provide up-to-the-minute online information


The core strategy of Internet Securities Inc is focus. It provides specialized financial information for emerging markets through contractual agreements with ISP’s in these markets. It plans to recover financially in the future and become profitable by

• develop new products to meet needs of targeted customer groups (energy, telecommunications, financial services, pharmaceuticals) � expand strategy

• increase country coverage � expand strategy

• provide contract services for other companies � extend strategy

Overall, I.S. plans to continue to leverage its customer base, infrastructure and market expertise in emerging markets to continue having its competitive advantage.


Proposal Internet Securities Inc. goes public

Analysis I.S. could follow other dot-coms and enlist for an internet IPO deal. This way, the company will be able to raise the much needed capital to further enhance its products and expand its presence in more countries. Analysts tended to look favorably on a subscription revenue model, and due to the fact that I.S. was mainly a BB company, it was sufficient to raise capital relatively easy.

Conclusion as we see from Exhibit 16, a lot of small/medium-size companies were not able to complete effectively an IPO. Also, from the same Exhibit we can deduce that the majority of them had a low TEV/LTM revenue. An outcome like this for our company would have a negative financial impact on our company and possibly reduce its market value.


Proposal Additional funding of Internet Securities

Analysis As done successfully in the past, I.S. could go back to venture capitalists or strategic investors for an additional round of funding. This way, the expansion strategy of the company could be realized and possibly by 001 start posting its first profits. On the other hand, from the financial data shown in Exhibit 14, I.S. has unfavorable cash flows for the years 18-1 and more worryingly declining revenue growth. In addition to that, Operating expenses increased approximately 50% between these years indicating inefficiencies in operations. A possible explanation could be the continuous geographical expansion, but without leveraging customer offerings/revenues to existing markets.

Conclusion We believe that it would be difficult at this stage to secure additional funding due to the unfavorable financial trends (cash flow, revenue growth, operating expenses, income).


Proposal Form alliance/venture/partnership with strategic established investor Euromoney PLC

Analysis Due to the fact that I.S. is a special type of focused distributor (Infomediary), which provides specialized financial info, it has all the usual characteristics of a successful vertical portal. On the other hand, Euromoney PLC is a well established brick & mortar company in the field of media. Its strength is based on its editorial content and support for the international finance community. Also, Euromoney PLC is a leader in publications for emerging markets, something which complements effectively with the services/products offered by I.S.

Nevertheless, both companies need each other to stay in business long-term. The reason is that due to the nature of the internet and its properties (low cost standard, creative destroyer, transaction cost reducer etc.), service offerings supplied by internet companies are easily imitable, which in effect reduces most barriers for potential new entrants. Internet companies need the complementary assets offered by traditional businesses (increased brand awareness, stream lined processes, consolidation of business processes, well established distribution channels) to effectively market their services/products. Euromoney PLC is such an organization which can successfully integrate I.S. Also I.S. cannot sustain its business long term due to the fact that in terms of profitability is not successful up to now.

Conclusion Although there is a plan for I.S. to become profitable in the future, this cannot be guaranteed. Therefore if the offer for acquisition is in line with shareholders’ expectations, then I.S. should accept it.

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