ITEX Bartering for a Buyout?

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For the last six months I have been tracking the industry movements of ITEX. Most of the real action started when Steve White became the CEO. Steve is a savvy marketer and someone with vision. In a conversation with him in March, I learned that his aspiration for ITEX is much larger than the inudstry normally conceives. Steve wants ITEX to transform the way business is done in the United States.

Evidence of this became clear when ITEX started working with then-Idearc, now-SuperMedia. The original objective, according to press releases and Steve White, was to provide the software for SuperMedia to create their own trade exchange, to be named SuperTradeExchange. SuperMedia, with a struggling flagship product (yellow pages phone book – formerly the Verizon Pages) and a new market cap of 6.5 billion dollars post-bankruptcy, seems poised to acquire and manage new business models…

To SuperMedia, barter has probably always been a way of doing business, but not generating revenue. From an Idearc SEC filing December 2006:

Barter Transactions
We enter into certain transactions where a third party provides directory placement arrangements, sponsorships, or other media advertising in exchange for placing their advertising in our print or online directories. Due to the subjective nature of barter transactions, we do not recognize revenue and expense from these transactions. If recognized, revenue associated with barter transactions would be less than 2% of total revenue.

With revenues approaching 2.5 billion dollars, 2% of SuperMedia’s internal barter campaign would equal a minimum of 25 million dollars in media bartered in a direct fashion.

This next part is a guess – I would assume that someone at SuperMedia used to be part of the barter industry. Many of the people I have known in the barter industry over the years have migrated in and out of media while they migrated in and out of barter. This person looked at that number and said, first to themselves and then to someone who had some kind of decision making power, “We have a database of 18 million businesses. We already barter 25M, large, every year. Why aren’t we making more money from this?”

Then is born SuperTradeExchange. According to Steve White of ITEX, SuperMedia went through a long period of investigation, looking for the best software and the company that could help them manage and create their monster barter exchange. ITEX happens to be the biggest, has internal software, and a large broker network to handle the business. After the period of investigation, ITEX gets the contract.

According to an ITEX broker I spoke with recently, one of the big complaints of ITEX franchisees is that corporate resources are being diverted to the STX offices. The office listings on the STX website show at least one ITEX corporate office handling the transactions of an STX area.

Next comes the reverse stock split. If you owned five shares of ITEX stock, now you own one. The reasoning behind the reverse split (presumably) is to increase stock value, get listed on the NASDAQ, and increase the visibility and the perceived value of the company. The reverse split also decreases the number of minority shareholders, giving the current management more leeway in decision making power. But what else is behind the reverse split?

I assume SuperMedia would agree to an ITEX buyout with a couple of caveats. First, it can’t just be something nice to add to the pie, ITEX would need to bring substance. 60 cent shares aren’t going to do that. Neither is a paltry (compared to SuperMedia’s revenue) couple million dollars in revenue. What ITEX does bring to the table, though, is a tough corporate staff, a debt free company, and the ability to leverage a niche that SuperMedia never has.

That being said, the original plan of SuperMedia was to run the SuperTradeExchange in a brokerless, online-only environment. For those that are familiar with the past of the barter industry, we know that that model doesn’t work. Big Vine and All Business Barter are the notable failures with that same model.

After messing around with the online-only format, ITEX, I assume, striked up a new deal to provide brokering services to those STX clients. THIS creates value for SuperMedia. Now they are dependent. Now they NEED ITEX to be able to continue to operate profitably.

An increased stock value, a debt free company, filling a genuine need…these are all very valuable to a company that doesn’t foresee a time when yellow pages are going to the be the medium of choice for information gathering.

But what happens to the franchisees? Where do they go?

This is the question, unanswered, that the future has to show. What does Steve White anticipate as part of the buyout? One would assume that SuperMedia would not want to use cash to buy the company, but leverage stock instead. Certainly SuperMedia, with a business database of 18 million, has much to gain from a successful and prosperous barter exchange.

The current franchisees may or may not be a part of the long term future of ITEX. Whether or not SuperMedia would replace them is good question, and if they did, who would they use in their place? Would ITEX convert the franchisees to employees, or would the current arrangement still stand?

Whatever the future is for ITEX, and my opinion is a leveraged buyout by SuperMedia, they remain the biggest exchange in the United States.

2 COMMENTS

  1. Excellent report…..Tyler.

    A couple of quick thoughts….re the following two quotes from your story.

    A …..”According to an ITEX broker I spoke with recently, one of the big complaints of ITEX franchisees is that corporate resources are being diverted to the STX offices….”

    B……“We have a database of 18 million businesses. We already barter 25M, large, every year. Why aren’t we making more money from this?”

    As to the first part…..ITEX has other issues that need to be addressed asap….based on numerous conversations and complaints I’ve had with various ITEX brokers…and students of mine.

    1. THE ITEX SEARCH FEATURE….

    It’s beyond bad…it’s amateurish.

    Most ITEX members and brokers I’ve spoken to…. agree. It’s been bad for over two years now!

    When an ITEX member punches in X he or she should be able to pull up listings reflecting–X

    Not …..F, L, or N etc.

    This is an issue that could be fixed in a matter of a few days…..and I have a Barter Arbitrage student named Nick…a brilliant computer whiz who could easily fix this issue for ITEX if they are interested.

    When someone punches in a certain type of vacation…and ends up with a listing for a “horse” etc ……there is a PROBLEM with the search feature.

    I’m not joking…..my students have compiled a list of the funniest search terms that have come back for items being searched for via the ITEX search feature– and it’s not so much funny….as tragic…..because it’s embarrassing .

    It hurts business…and one of the biggest complaints from my students and ITEX brokers I’ve spoken to…. is their inability to understand why a company as large as ITEX has a search bar that isn’t just poor…..but really poor…and it’s been that way for way too long!

    That’ not good. BECAUSE IT’S TOUGH TO BUY WHAT YOU CAN’T FIND. It’s tough for your customer to BUY…..ONCE THE LISTING GETS BURIED…..FOR THE SAME REASON.

    I am NOT a broker nor do I have any affiliate with the ITEX corporation.

    I do send a majority of my students their way…..because over all…. ITEX does a good job in terms of their market place quality….and it’s pretty user friendly in terms of listing items or services.

    2. INTERNATIONAL MEMBERS…or lack of.

    As of this writing I have been forced to send a total of 27 INTERNATIONAL STUDENTS to other barter exchanges outside of North America due to the fact the ITEX computer system is NOT set up to handle them….aka….enter them into their data base.

    Many of the students are big companies from the UK. That’s a lot of lost revenue….for ITEX.

    Seems silly to me….but again….a computer issue that can be fixed.

    3. THE LACK OF A “BUY IT NOW BUTTON” FOR CANADIAN MEMBERS.

    My God…this doesn’t just hurt business….it’s bad business.

    Canadian ITEX members and USA members in the Toronto exchange do NOT HAVE ACCESS TO A BUY IT NOW BUTTON…which means they can NOT buy or sell….anything without going through a broker who then must contact another broker etc….

    This often results in the item being sold out long before my student gets a response back from his or her broker in Toronto….hint hint!

    NOTE: I have other things I’ll be discussing in regards to the ITEX Toronto office specifically at a future date.

    I have many students who have lost sales….and the opportunity to purchase for this reason alone…..as phone tag…email tag…..is not a good use of leverage….or anything else “positive”.

    As for the other quote in your story:

    The “why” is easy to answer from my perspective. Barter as a has always squandered it’s data base…..as they often step over dimes to pick up pennies.

    BARTER IS THE MOST UNDER VALUED INDUSTRY I HAVE EVER COME ACROSS…WITH MORE HIDDEN ASSETS THEN ANY OTHER INDUSTRY OF IT’S SIZE.

    The single most undervalued and under utilized asset of any barter broker whether it’s ITEX, IMS, or a smaller local exchange…..remains it’s DATA BASE OF MEMBERS.

    I have put this industry in front of some of the most brilliant, wealthy, and successful marketing minds in the world….and they all say the same thing: BARTER LEAVES MILLIONS ON THE TABLE OUT OF APATHY, IGNORANCE, OR FOR OTHER REASONS UNKNOWN.

    The average broker could utilize his or her member data base in ways that would create new revenue utilizing simple proven models this industry has never even considered….aka joint venture techniques that are easy to implement…and proven to work.

    I’m not talking about “chump change”…..I am referring to certain types of joint venture deals that not only can generate YOU (not corporate) large sums of cash…but benefit your traders as well.

    Tyler’s story here….. should also serve as a wake up call to a lot of you.

    BROKERS……Stop looking outside of yourself for “help” from corporate or any other third party entity…because once you understand the value of what YOU have….. it really wont matter too much what “they” do.

    Stop worrying or “reacting” re: how the industry as a whole “positions” this industry…..reposition it YOURSELF FOR YOUR OWN MARKET.

    Be proactive…and use their very own ” tired spin” against them….and make yourself stand out as a renegade broker who gets high end, quality clients, in large numbers…. that the trade world has given up on.

    A renegade broker leverages his or her time in terms of client generation, repositions him or her self, and opens up new markets this industry has long ignored. A renegade broker does not worry about “corporate”….nor do they trade time for dollars.

    You brokers have something of value….the ability to do business differently then an industry filled with “sameness.”

    That is a major ADVANTAGE if you understand it….and implement it.

    Vegas Vince
    Barter Arbitrage

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