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Barron’s Exposes InnerWorkings, Warns Investors

By Randy Davidson
Published: January 14, 2007

Barron's, a sister publication of the Wall Street Journal, published a negative review of InnerWorkings in an article this weekend. InnerWorkings provides print procurement services to corporate clients in the United States. According to the company's web site, the firm uses proprietary technology to create a "competitive bid process to procure, purchase and deliver printed products as part of a comprehensive outsourced enterprise solution and in individual transactions."

Morgan Stanley has InnerWorkings executives on a roadshow to convince investors to put up $150 million in a follow-on stock offering. Barron's columnist Bill Alpert, is skeptical of the offering and the company. He notes that the company's stock is overvalued and former employees say the software does not work as it should.

Other highlights:

- InnerWorkings appears to hide Eric P. Lefkofsky's relationship to the company. Alpert says Lefkofsky has a history of "busting investors after promising to radically transform bricks-and-mortar industries." Lefkofsky's last software venture ended in quick bankruptcy and fraud suits.

- The current road show and stock-offering with Morgan Stanley is, in part, aimed at cashing out much of Lefkofsky's stock. He and his affiliates own 35% of InnerWorkings.

- In August, just before InnerWorking's IPO, employees "stayed late padding the company's off-the-shelf FileMaker Pro database with an impressive-looking list of suppliers... dummied up some screen-shots of the software for the inside cover of the prospectus..." - this for potential investors.

In his article, Alpert says InnerWorkings is just a "glorified broker of print jobs" with $5.7 million in profits over the last 12 months and a market valuation of $700 million.

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Discussion

By Observer on Jan 15, 2007

Innerworkings is a "print broker." Not that anything is wrong with that, but by definition they aggregate print spend and shop various printers for the best price. There acquisitions dollars have been used for buying print distributorships not on software development resources. The software does not work, at least at the "printer" level. I haven't seen it on the corporate "buy" side to comment. Another major problem with the company is lack of understanding of today’s printer. Technology is getting dispersed to a new breed of tech savvy printers and the brokers at IW are still trying to deal with them like they deal with conventional lithography companies. Lastly, one has to question if any long term printing company wants to get locked into IW's software platform which precludes them from bidding on any future project for a customer outside of IW system. So basically if the printer wins a contract for $50 (yes they do go that low) for say Procter and Gamble. They can never deal with P&G without involving IW print because they sign a non-compete in order to participate in the 1st time bid!

 

By claude on Jan 16, 2007

lets hear from the vendors?

 

By JR on Jan 16, 2007

Is Vistaprint Next on Barron's list of over-valued printer stocks exposed?

 

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