Its Broke, But Can Anyone Fix It?

As MarchFirst looks for a new CEO, its options may be limited.

The clock is ticking for MarchFirst.

The financially troubled Internet consultancy faces plenty of challenges ahead, as it makes a full-court press for a new CEO and seeks additional funding to pay off a loan to stay afloat.

The challenges grow with each passing second. Investors have turned their backs as MarchFirsts stock has slid below a dollar. In addition, the company faces another round of layoffs that could pare it back to half of its original size.

On the heels of the recent resignation of MarchFirsts CEO, Robert Bernard, a three-member executive committee will oversee the companys "management transition" and presumably set a new course for the company.

The committee includes David Stanton and Neil Garfinkel, both partners with Francisco Partners, which invested $150 million in MarchFirst last December. The third member is Barry Moore, vice chairman of Kurt Salmon & Associates. Tom Epley, chairman of Paradyne Corp. and a turnaround specialist with ties to Stanton, is serving in an advisory capacity. Francisco Partners officials were unavailable for comment.

The Memo Stanton will chair the executive committee. A memo viewed by [email protected] Partner shows MarchFirst also has created a 10-member field-management committee that includes Steve Pollema, who recently was appointed president and COO. He replaces Thomas Metz, who resigned with Bernard.

"The goal of this management restructuring is to flatten the companys organizational structure and empower field leadership," the memo states.

Speculation was abundant last week about MarchFirsts fate. Scenarios include merging with another company, taking the company private, and breaking up the company to be sold in pieces.

Limited Options Some observers suggest MarchFirsts options are limited. Tom Rodenhauser, president of Consulting Information Services, says corporate turnarounds typically involve a company returning to an earlier business model that worked. But in MarchFirsts case, "theres not much proof that they ever had anything working very well together," he contends. "They dont have anything to go back to."

Longer sales cycles and skittish buyers make the restructuring job all the more difficult. "The problem right now is that its a horrible climate for picking up business," Rodenhauser says.

Indeed, MarchFirsts Q4 revenue of $213.5 million declined 42 percent over Q3. Last month, company executives projected Q1 revenue at $190 million to $215 million. But a source close to MarchFirst says the lower end of that range may prove optimistic. In addition, the companys $125,000 revenue-per-employee figure is well off the industry average of $209,070, according to R.W. Baird.

Deeper Cuts Sagging business may mean more layoffs in the 2,000 to 3,000 range for the 7,200-employee company. The company employed about 8,000 when the deal combining Whittman-Hart and USWeb/CKS closed last March.

Amid the restructuring, MarchFirsts stock traded below $1 dollar last week. The company faces delisting from Nasdaq if that trend continues for 30 consecutive trading days (the dollar level depends on how a company was listed initially).

Whether public or private, MarchFirst will need cash to keep the doors open. The company needs as much as $300 million to pay off a Bank One loan and to fund continuing operations, says one source.

MarchFirst is "evaluating various financial proposals already in front of the company," the MarchFirst memo states.

An epigram on MarchFirsts Web site states, "If theres challenge, theres opportunity." But that also could prove to be a fitting epitaph.