Interpath on buying spree

Sharks love to swim in the waters of an economic downturn, and Interpath Communications CEO Joel Schleicher is showing his teeth.

Interpath has snapped up the PeopleSoft Enterprise Resource Planning (ERP) business of ASP rival Interliant. The move provides Interpath with a top-tier list of clients to add to its customer base and a foothold in one of the strongest markets, one that is still growing. As part of the deal, Interpath will take over Interliants Columbus, Ohio, data center and support facilities, and assume all existing contractual arrangements with Interliants PeopleSoft hosting clients. Interpath has also agreed to offer employment to most of the affected employees of the Interliant division. The financial terms of the deal were not disclosed, nor was the number of employees involved.

The ASP sector, like just about every other technology sector, has been hit hard economically, but unlike most of his competitors, Schleicher has a key asset — cash in the bank. Just as important, the company has no debt.

Interpath received a $100 million equity investment a year ago from an investment group led by Bain Capital and Progress Energy, and is still sitting on about $30 million. Schleicher says Interpath will use those funds to scoop up other competitors, or parts of their practices, preferably at going-out-of-business prices.

"The market clearly stinks, but that creates opportunity," he says. "We have a management team thats been through this all before — weve got the gray hairs — so we have the discipline to make the right decisions."

Schleicher would not reveal what other companies Interpath may be talking with, but he says discussions are being held with up to a dozen firms, and news of another acquisition could come before the end of August. However, Interpath isnt the only shark swimming in these waters.

Earlier this month Divine, an Internet holding company in Chicago, announced it would acquire the assets of ASP Intira of Pleasanton, Calif. Intira, which boasted several top-tier clients, including Longs Drugs, filed for Chapter 11 bankruptcy protection on July 30 in the U.S. Bankruptcy Court in Wilmington, Del. Under the terms of the deal, Divine agreed to pay $1 million in cash and provide a $6.8 million credit facility and assume certain liabilities.

In exchange, Divine assumes control of Intiras data centers in Pleasanton and St. Louis, as well as a list of about 30 customers. Those customers were generating about $1.8 million per month in recurring revenue.

Interpath is not left out in the cold on the Intira mop-up. The company struck a business partnership with Deloitte & Touche in July after a similar partnership Deloitte had signed with Intira earlier this year was fouled up by the Intiras financial woes. Deloitte faced the embarrassment of directing clients to an ASP that was clearly going out of business.

Through the new partnership, Deloitte will continue to implement, integrate and manage enterprise applications from JD Edwards & Co., Lawson Software and Solution 6 Holdings — parent of CMS Open — but will contract with Interpath to host and deliver those applications over the Internet to clients., an Alexandria, Va., ASP also struck a deal earlier this month to acquire the hosting division of Aspen, an ASP in Herndon, Va. Outtask specializes in customer relationship management applications from Siebel Systems, and financial applications from Great Plains Software. Terms were not released.

For its part, Interliant says the sale of its PeopleSoft business to Interpath is in line with the narrowed business strategy and restructuring plan the company announced in April. CEO Bruce Graham says that plan includes exiting the ERP business to focus on four core offerings: managed messaging on the Lotus Domino and Microsoft Exchange platforms, managed hosting, Web hosting and security, as well as associated professional services.

"Together with other actions we have implemented in the past several months, we believe this sale allows us to focus resources on our more mature solutions that provide a greater profit potential," Graham said following the sale.

Schleicher says there is a big benefit to be gained from acquiring practices such as Interliants with solid customers already in place. "About 40 percent of customers that try out an initial application will move on to a second application," he says. "So getting them to try [the ASP service] is most of the battle."