Data Systems, Information Architects Call Off Merger

Integrator Data Systems Network Corp. and software developer Information Architects Corp. terminated a merger agreement, which had been scheduled to close on Wednesday.

Information Architects, formerly known as Allydaar Software Corp. and based in Charlotte, N.C., has suffered financial setbacks, and its stock price has fallen from $12 in January, when the merger was first proposed, to the $2 range since then.

"They are losing a phenomenal amount of money, and that just didn't make sense for our shareholders. And because of the cost of the transaction, it would have diluted the shareholder value," said Mike Grieves, chief executive of Data Systems, Farmington Hills.

A joint statement issued by the two companies on Wednesday characterized the termination as a mutual agreement.

Information Architects had set its sights on Data Systems as a good company to cross-sell its Web-enabled software services. At the time, Data Systems' stock was trading over the counter after being delisted by Nasdaq in 1998.

The merger seemed like a good opportunity for Data Systems to work its way back onto Nasdaq, but things began to unravel in April when Information Architects restated its 1998 earnings report, reducing revenue from $29 million to $27 million.

To make matters worse, the company posted losses for its most recent quarters, which eventually sent its stock into the $2 range. The company also faced shareholder lawsuits.

Had Information Architects not suffered such a set back, the deal would have been concluded Wednesday, Grieves said.

"In theory, the deal made great sense," he said. "The deal was set at a nice market cap, [but] it is nowhere near that at the moment."

Data Systems has been migrating its company towards a high service model. Grieves said $25 million of the company's $60 million in revenue comes from services today, up from about $2 million in service revenue three years ago.

"We are doing high-end network-management services, we have a large help-desk operation, and we no longer do break/fix anymore," Grieves said.

Grieves, a longtime channel player who was set to retire, said he was not disheartened by the events.

"I would like to have sat on the beach and worked on my doctorate, but I think we have repositioned the company," he said.