SevenSpace Acquisition Leads MSP Consolidation

SevenSpace announced Thursday, Sept. 6, that it will acquire StrataSource in a stock-swap deal that marks the beginning of an anticipated string of merger and acquisition deals among managed service providers.

Formed in 2000 and funded with $45 million in venture financing, SevenSpace aims to establish itself as a leading enterprise-services-oriented MSP. In this niche, it competes against InteQ and Totality, an MSP closely aligned with Web hoster Conxion. Some of the larger MSP competitors that the merged SevenSpace and StrataSource will face include companies such as Loudcloud that have shifted their focus from dot-coms to enterprise customers.

The acquisition comes at a time when analysts predict that by 2003, only few of the hundred or so MSPs that are around today will remain independent or operational, as Interactive Week reported in its special report on MSPs..

The big competitive advantage that SevenSpace has is selling managed services to business customers that dont want to move their operations into third-party data centers.

"We are claiming the top position as the MSP delivering complex application management services to the enterprise. The combined company will have nearly 100 customers, half of whom have services delivered to them inside the corporate data center," said Peter Weber, SevenSpaces president and co-founder.

Because it has this capability, SevenSpace is remarkably different from competitors such as Loudcloud that require businesses to buy colocation in Internet data centers through them.

SevenSpace execs expect to fully integrate their business with StrataSources infrastructure - data centers, employees and processes - by December. SevenSpace plans to sell its services directly and through its 21 channel partners, including BEA Systems, BMC Software, Exodus Communications and XO Communications. Customers include Foot Locker, Warner Bros. and Xerox. Many employees and executives of Chantilly, Va.-based SevenSpace hail from Nasdaqs IT operations in Washington, D.C., and Maryland, most of whom left after the exchange outsourced its IT management to Electronic Data Systems.

Both SevenSpace and StrataSource are privately held. SevenSpace is buying StrataSource assets with its stock, Weber said. Investors in StrataSource, which raised $6 million two years ago, become shareholders in SevenSpace, but dont get any board-level participation.