IT-listed services company Powerlan has struck a deal with the CPS group whereby it will acquire CPS's ageing NEIS B2B exchange without actually paying a cent.
The NEIS exchange was developed in 1985 by BHP and Wollongong University, and provides a range of electronic trading services for around 130 commercial clients including BHP, Exxon Mines and the NSW Department of Training and Education.
The exchange was acquired in 1996 by e-commerce specialists The CPS Group of Companies, who have decided to share the profits of the exchange with Powerlan for four years, after which Powerlan will own the NEIS business outright. As of this week, Powelan will technically be running the NEIS business, to be renamed Elcentrex. It will also employ former NEIS staff. But unlike a traditional acquisition, there will be no direct transfer of cash, just the split revenues over the next four years.
The logic behind the deal, according to CPS Group managing director Ian Campbell, was that he believed the exchange would make more profits using Powerlan's resources in the next four years than CPS could have earnt keeping the exchange for itself. Although neither party would disclose the exact split of revenues, Campbell termed his share as being "significant" and indicated that CPS would also benefit from a series of additional partnerships with Powerlan over future projects.
"We looked around and saw there were a lot of big e-commerce exchange groups starting up, and came to the conclusion that although NEIS had the best technology, we couldn't hope to achieve its potential without pushing it onto a larger scale," said Campbell.
"The exchange is currently only marginally profitable and needed a dramatic improvement in scale before it would have long-term value. It is technologically advanced but wasn't living up to its potential as a business."
Tom Matic, business solutions director with Powerlan, said CPS has limited resources and needed a strong partner to make the exchange a success. Powerlan has given CPS no formal guarantee it will market the exchange aggressively, but according to Matic, CPS management are confident that Powerlan's involvement will be financially beneficial.
"There are no legal obligations as such, but more along the lines of due diligence, they are satisfied our intentions will be beneficial to them," he said. "They are taking a risk, but expect a high return for that risk."