Each week seems to bring new players to Web-land, but now there's a twist.

The new guns don't talk about startups; they focus on restructuring, mergers or re-tuning enterprises for new capital infusions.

Typical of this new breed of e-rescuer is Santa Monica-based NetCatalyst Inc., an outfit that calls itself "the liquidity engineers." The company provides advice or even management help to get a business to the next stage.

As widely reported, many e-companies are burning through their capital not a problem as long as another round of financing can be finagled.

"But in April, everything changed," said Riggs Eckelberry, a principal at NetCatalyst. "New capital is hard to come by. Now, companies really have to change their focus from simply growth to packaging themselves for the acquirer or investor."

Until recently the mad dash to e-commerce was merely about becoming "first in the space," or getting "lots of eyeballs" looking at a Web site. But the spring tech wreck rendered many such business plans obsolete, according to Eckelberry, a former freighter captain.

The sea change in investor sentiment means that almost every e-business must revamp its business plan, he believes.

Eckelberry said the company does what is called "instant CRM," which stands for customer relations management. For example, if a Web-surfer makes a purchase, a site ought to gather information about the buyer, offer various other products that might appeal to that buyer profile, and perhaps send e-mails in the future in an effort to generate more business.

NetCatalyst assesses whether that's happening and quickly moves to improve a client's site so it will be more attractive to a merger partner.

In a similar vein, Larry Braun, senior managing director at merger shop Barrington Associates, is running a small platoon of five merger professionals ragged these days, finding marriage partners for e-businesses that have retained Barrington as a matchmaker.

One Braun strategy: Sell the e-business to a bricks-and-mortar company. "We call it 'clicks-to-bricks,'" said Braun. "You need to find a partner who can unlock value in the e-business."

Many Old Economy companies actually have profits and money to make acquisitions, and they want the broader exposure and sales mix that an e-tailer can bring. So there are matches to be made, said Braun, who typically handles assignments with a total sales price ranging from $50 million to $400 million.

About 15 percent of Barrington's business is now Internet-oriented another sign that the power players in e-commerce are no longer only the dreamy venture capitalists but also the merger mavens and corporate restructurers.

Brand New Role

Jeri Harman, former investment banker in Los Angeles with brokerage First Security Van Kasper, has traded in her banker robes to become a principal and investment adviser with American Capital Strategies Ltd., one of the more unusual publicly held companies in America.

The Bethesda, Md.-based American Capital, with $650 million under management, either extends "mezzanine" financing (usually loans with an equity kicker) or acquires equity stakes in medium-sized operating companies.

In general, Harman and American Capital stay away from Internet plays, turnaround situations and retailers.

"Our focus is on domestic, well-established middle-market companies, which have solid track records, often in manufacturing," Harman said. "We also take private 'orphan' publicly held companies, if they have the right cash flow and management in place."

Typically, Harman is looking for companies worth $150 million or less to acquire or finance a market under-served by traditional investment bankers, who now consider anything under $1 billion to be "small cap" and too small to bother with.

For investors, the appeal of American Capital is that it throws off interest earned in the form of dividends to shareholders, while building a larger pool of assets through acquisitions and well-timed sales, said Harman.

However, even Harman notes that American Capital, which itself went public in September 1997, hasn't been in business long enough to have a "whole lot of realized capital gains," she said. It has, however, acquired 40 companies but hasn't sold enough to have a meaningful track record. In time, it will be determined if the novel idea of buying, financing and selling businesses, under the umbrella of a publicly traded company, is good for shareholders.

As top gun in the Los Angeles outpost of American Capital, UC Berkeley MBA-holder Harman scours Southern California for companies to buy and receives regular touts from such regional merger mavens as Brentwood-based Barrington Associates or Century City-based Houlihan Lokey Howard & Zukin, which represent selling firms.

Though Harman said American Capital in general does not employ the industry "roll-up" strategy the acquisition of several firms in the same sector to gain market heft, economies of scale and other synergies she is now hip-deep in an "industry build-up" of private, high-end metal-bending shops in the L.A. market. She declined to identify the companies involved.

Going Online

West Los Angeles-based brokerage Jefferies & Co. has taken a large, undisclosed equity stake in freerealtime.com, the Irvine-based online purveyor of private and public investments being hammered together by Byron Roth, chairman of Newport Beach-based securities house Roth Capital Partners.

Jefferies will use the freerealtime.com Web site to offer private placement deals, as will Roth Capital Partners.

"We will supply the product to the site," Roth said. "In general, we won't just be putting deals on the site that someone else has put together."

Why the growing emphasis on private equity? One reason is that private placements are faster and cheaper, without the extensive regulatory filings required by the SEC.

Additionally, as Roth points out, with all the mergers in the investment banking business, the surviving brokerages are not interested in smaller deals. And with new Nasdaq listing regulations, any initial public offerings for companies with market caps under $75 million get iffy.

But smaller companies still need growth capital. "We used to do an IPO to raise $7 million, then go back with a secondary offering to raise $40 million. But now all that has to be done as private placements," said Roth.

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at sevencontinents@mindspring.com.

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