Chicago Sun Times
February 28, 2000
BY HOWARD WOLINSKY BUSINESS REPORTER
In what may be one of the largest public stock offerings of a technology company this year, divine interVentures inc., the Lisle-based Internet operating company, next month will test the investing public's appetite for business-to-business Internet companies.
In many ways, this much-anticipated initial public offering also is a test of Chicago's standing as a technology hub.
Divine is expected to go public on the Nasdaq market the week of March 27, most likely March 30. The offering of 57.5 million shares at up to $8 each is expected to raise $460 million, up from the originally announced $250 million. Divine previously raised $500 million from corporations, individual chief executives and its staff. After the sale, divine's founding insiders will control 56 percent of the voting power in the company.
Divine plans to use the funds it raises to invest in and develop Internet business-to-business companies--an industry that is expected to total $2.7 trillion in revenues by 2004.
Divine already owns a piece of 43 companies and is negotiating with 50 other partner companies.
Andrew J. "Flip" Filipowski, 49, is the man with the plan for divine, a new-style Internet holding company that invests in and helps operate business-to-business Internet companies.
The technology that made possible the digital revolution was developed only a short distance from Chicago at the University of Illinois at Urbana-Champaign, where the first Internet browser emerged in 1994.
But it was venture capitalists and companies in Silicon Valley and other tech centers that benefitted most from the first wave of business-to-consumer Internet business.
Filipowski sees B2B as the next great opportunity, not only for his own company but also for Chicago, his hometown.
Last year, Filipowski sold the company he founded, PLATINUM technology Inc., an Oakbrook Terrace corporate infrastructure software company, for $3.6 billion to Computer Associates. That was the most any software company sold for until Computer Associates bought another company for $4 billion earlier this month.
Only a year ago, PLATINUM was facing some hard times, laying off 1,000 employees--15 percent of its work force--to improve profitability at a time when its stock had fallen 30 percent from the previous month. At the time, Filipowski told an analysts' meeting that he would sell the company if earnings didn't improve.
"We won't be standing here talking if the stock stays at $13," he said on Feb. 22, 1999. "Besides, at this price, the company would be acquired anyway."
Still, PLATINUM had a happy ending.
Dick Reck, head of the technology practice at the accounting and consulting firm KPMG in Chicago and PLATINUM's longtime accountant, said, "A $1,000 investment in Platinum when it was started yielded $500,000 when it was sold." He said that Filipowski's peers, fellow chief executives, have demonstrated their confidence in Filipowski by investing $150 million of their own money in divine.
Unable to compete with Computer Associates, Filipowski decided to develop what he now describes as an Internet operating company that invests in start-ups in the emerging B2B area. Divine owns stakes in its member companies of from 1 percent to 80 percent, with typical investments of about 40 percent.
Of the nearly 50 companies under the divine banner, about half are in the Chicago area. Divine, which has received $100 million in backing from Dell Computer Co., also has opened up shop in Austin, Texas, and it is opening a tech center in Seattle, having received $25 million from Microsoft Corp.
The member companies would be a "family" that would help each other succeed. With typical Filipowski flair, he called the model the "Internet zaibatsu," named for a Japanese business model where family-owned companies worked together and shared not only resources but customers as well.
The Americans banned the zaibatsus during the occupation after World War II in an effort to create more competition. Internet zaibatsu captures some of the mystery of the East and the edge of being an outlaw.
Companies such as divine also have been referred to as "EcoNets," or economic nets, and dot-glomerates.
CMGI Inc., the Andover, Mass., Internet holding company, which recently invested $1 billion in Chicago start-ups, including divine, YesMail.com and uBid, is an earlier model for an EcoNet. Filipowski argues that these are the models most corporations will have in the years ahead.
Divine offers its member companies services such as public relations from Buzz divine, legal services from Justice divine and human resources from Talent divine.
Though there are rumors that divine requires member companies to only use divine's own services, Filipowski flatly denies this. He said the companies are free to use whatever services they want and even to leave the zaibatsu.
Filipowski has become a high-profile advocate not only for divine but also for making Chicago a B2B hub. He has won praise and support from Mayor Daley and Gov. Ryan.
Divine is building a 7.2-acre "habitat," or incubator for start-up dot-com companies, at the northern end of Goose Island with a $14 million city tax subsidy as part of Daley's plans to make Chicago a tech center.
Nancy Keene, a director in the global technology industry group with PricewaterhouseCoopers, said Filipowski and divine are helping to build Chicago into a tech center.
"Flip has star qualities," she said. "He has vision, money and success from PLATINUM. All this will help build Chicago as a tech center."
Some venture capitalists here privately have been backbiting divine--although not technically a VC--for "cherry-picking" the most promising companies. Others feel that divine is helping make the Chicago area more visible as a tech center.
Mark Achler, a partner in Kettle Partners, the Chicago high-tech venture fund, said, "I think divine is great--great for Chicago, great for the tech community in Chicago."
"Divine is another great development for technology in Chicago," said J. B. Pritzker, founder of William Blair/New World, the Evanston venture capital fund. "The more of us who devote our resources and focus on investing in Chicago, the better for Chicago and Illinois and entrepreneurs throughout the state."
But what if Flip flops?
Mark Glennon, a specialist in corporate finance with the law firm Holleb & Coff and founder of Illinois Venture Capital Conference, said that so much of Chicago's prestige and reputation is linked to divine that a failure would hurt the city.
"Flip's plan is hugely ambitious, but I think he'll succeed, if not with all of it, at least with most it," Glennon said.