NaviSite to Buy ASP Surebridge

The deal will allow the technology services provider to move deeper into application services.

Technology services provider NaviSite Inc. announced its largest acquisition to date Thursday, signing a definitive agreement to acquire application services provider Surebridge Inc., the largest ASP for Microsoft Corp.s CRM applications.

The cash-and-stock deal, which is expected to close later this month, is valued at approximately $55 million, including 3 million shares of NaviSite common stock.

The deal will allow NaviSite to move deeper into application services, according to the companys CEO, Arthur Becker.

"The last couple of years weve made acquisitions to increase our infrastructure capabilities—data centers, messaging hosting, content delivery—but application services has been a small part of our business," said Becker, in Andover, Mass.

With the Surebridge acquisition, NaviSite hopes to realize cost savings from overlapping services and infrastructure as well as new opportunities to sell its Web hosting, messaging and content delivery services into Surebridges application hosting customer base, and vice versa, Becker said.

"We expect to see some cross-sell and up-sell opportunities," said Becker. "Once a company makes that decision [to outsource applications or IT infrastructure], its easier to discuss other services that can be outsourced with them."

NaviSite was originally built by CMGI Inc. to provide technology services, such as Web hosting, to the investment firms portfolio e-business companies. CMGI took NaviSite public in the fall of 1999, then in September of 2002, it was acquired by another investment company, Atlantic Investors LLP, then doing business as ClearBlue Technologies Inc., which had previously acquired data center service provider and the managed services business of Applied Theory Inc.

The company maintained the NaviSite brand and has since gone on an acquisition binge, acquiring managed application services provider Avasta Inc., software distribution services provider Conxion Corp. and managed services provider Interliant Inc. last year.

Surebridge, a 7-year-old company, has also made acquisitions in recent years, acquiring Transchannel Inc. in November 2002 and Inc. in March 2003, bolstering its PeopleSoft and Microsoft hosted application service practices, respectively.

NaviSite has an existing relationship with Microsoft after starting a hosted Microsoft Exchange e-mail service last October, after the release of Exchange 2003, which supported such an ASP model.

Becker indicated that NaviSite, a publicly traded company (about 9 percent of the company is publicly held) with $22 million in revenues in its most recent fiscal quarter and around 900 customers, is a long-term project and not simply collecting companies to be sold itself someday.

"We have a great opportunity to deliver to the midmarket a collection of outsourced services," he said. "We have a jump on it, and we intend to build a company many times our current size. Were going to grow our investment."

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