USi Exits Chapter 11, Plans To Merge With Interpath

ASP USinternetworking emerged from bankruptcy last week with a cleaner financial slate,and as a bigger company.

Under its Chapter 11 reorganization, Annapolis-based USi extinguished $210 million in debt and received an $81.25 million investment from parent company Bain Capital. USi also unveiled an agreement to merge with Interpath, a Research Triangle Park, N.C.-based ASP in which Bain holds a controlling interest. The merger will create an ASP with more than 130 customers and total revenue of $150 million, according to USi. The combined company, which has yet to choose a name, will be based in Annapolis.

CEO Andy Stern says USi has 'north of $70 million in cash' on its balance sheet.

"Our financial stability and model is no longer a question," said USi CEO Andrew Stern, who will be CEO of the merged company. "After taking [out] transition costs relating to the merger, we will have north of $70 million in cash on our balance sheet, which ought to be sufficient forever."

In merging with Interpath, USi gains Vignette, Pivotal and shared-server services plus large accounts such as UPS and Borden. It also adds Deloitte & Touche to USi's integration partner roster, which includes Accenture and Internosis.

The combined company will focus on PeopleSoft, Siebel and Microsoft Exchange hosted applications, its highest-growth areas, said Stern. The ASP also may eliminate some service lines. For example, USi hosts Siebel CRM, while Interpath hosts Pivotal.

Despite the economic malaise, USi's revenue rose 25 percent last year, and several market drivers are signaling increased interest in hosted services, Stern said.

The reorganization and merger should boost USi, but ASPs that host packaged software haven't prospered, said Laurie McCabe, an analyst at Summit Strategies. "This is the group that is having the most trouble. Compared to Net-native ASPs, those offering packaged applications are not doing as well," she said.