MarchFirst Sells by the Piece

 
 
By Paula Musich  |  Posted 2001-04-16 Email Print this article Print
 
 
 
 
 
 
 

Acquirers are uncovering value in vertical units

Although the final chapter has yet to be written in the dramatic fall of MarchFirst Inc., the first pieces torn off in its dismantling tell the story of where a Web integrators real value might exist.

While other Web boutiques continue to labor—with rumors of layoffs and acquisitions dogging their efforts—Divine InterVentures Inc. took a back-to-business-basics approach recently with its acquisition of MarchFirsts choicest morsels.

For just more than $12.5 million in cash and a $57.5 million, five-year note, Divine surgically removed the failing integrators SAP AG implementation practice and the former Whittman-Hart systems integration business as well as its Host One applications hosting business, Blue Vector venture capital unit, and iCampus training business, which was poised to roll out in the coming months.

The deal netted Divine founder Andrew "Flip" Filipowski some $130 million in accounts receivable without a stitch of MarchFirsts suffocating debt.

"I think the value is in ongoing projects and backlog of business," Filipowski said. "Talent is a dime a dozen. You buy the existing relationships."

"Its the return to fundamentals," said Stephen Lane, an analyst at Aberdeen Group, in Boston. "[Its knowing] how to manage complex IT projects ... and how to keep clients happy."

The dissolving of the Chicago-based company illustrates what doesnt work as well as what does.

MarchFirst, which mailed thousands of invitations to its groundbreaking ceremony March 1, 2000, on real bricks, prided itself on staying away from dot-com businesses but couldnt attract enough blue-chip clients to keep up with its spending habits.

"They were doing expensive trips, wining and dining clients; people in branding were burning money on advertising and brochureware," said one former employee, who asked not to be named. "They were interviewing people up until the day of the [November] layoffs. You knew the company was in trouble in October, and they were just [wasting] money."

At the same time that Divine picked over MarchFirsts business at fire-sale prices, Electronic Data Systems Corp. announced its acquisition of European integrator Systematics AG, of Hamburg, Germany, in a deal valued at about $570 million.

EDS, of Plano, Texas, was also looking for existing relationships and a focus on back-end integration.

"They had high client loyalty—a lot of repeat business. They worked with a lot of well-known firms and at the same time had complementary skills in CRM [customer relationship management] and the enterprise application space," Steven Leonard, president of EDS e.Solutions group for Europe, the Middle East and Africa, said in London.

Market researchers are seeing demand for services that help to consolidate disparate e-business initiatives that larger companies took on in the boutiques heyday. "A lot of the work being done now is trying to do the back-end integration and to consolidate silo implementations done last year," said Francis Karamouzis, an analyst at Gartner Inc., in New York.

With the weakened economy and a strong focus on the bottom line, other e-business opportunities for boutiques lie in vertical markets or specific application areas where costs can be cut or greater efficiencies gained.

"More than ever, firms are looking for credentials and skills in specific areas [such as] customer care or logistics or procurement," Karamouzis said.

One exception is Williams-Sonoma Inc., which had worked with MarchFirst on its e-business initiatives but is looking for "another strategic services partner" to complete more projects this year, said Shelley Nandkeolyar, vice president of e-commerce at the San Francisco company.

The retailer will look to other boutiques for piecemeal work while using internal resources to guide the work. Nandkeolyar described the remaining boutiques as desperate. "There is never a day that I dont get five phone calls from all of them," he said.

News around integrators such as Scient Corp., which last week said it will lay off 675 workers, suggests that boutiques are being shopped for larger buyers. In addition to rumors about a potential Hewlett-Packard Co. acquisition, other reports point to large outsourcer Computer Sciences Corp. as a suitor. "What its really going to come down to for these CEOs is which ones are really good deal makers," Karamouzis said.

For Francisco Partners LP, the majority investor at MarchFirst that many believe is dismantling the company, whats left to redeem are the leftovers. "There are under 2,000 strategists and technologists left in Web design, creative design, CRM wireless expertise," said Alex Soejarto, an analyst at Gartner Dataquest, in San Jose, Calif.

What Divine walked away with is an opportunity to go after the promising enterprise information portal software and services market, where software and services are combined to improve collaboration among employees within an organization as well as between employees and customers or suppliers.

"Ours is a hybrid business. It has to be adaptable to the deployment of our software thats related to collaboration, interaction and portals. It has more to do with getting the work done than content," said Divines Filipowski.

"The original intention was for Divine to create a loose coalition of companies with shared interests. Thats part of the strategy—to fill out that coalition of companies," said Soejarto. "I suspect there will be several software acquisitions for some type of [business-to-business] e-business applications as the core of the new business."

 
 
 
 
 
 
 
 
 
 
 

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