Novo, Giant Step To Merge

The M&A activity in the struggling Web services space took another turn this week as Novo and Giant Step made the move to combine their operations into one organization.

Employees at both companies were informed this week that their firms will combine and operate under the Novo name, confirmed officials from BCom3, the holding company that owns both organizations.

"From a strategic standpoint it allows BCom3 to consolidate two of its major online services organizations into one," says Walter Petersen, a senior vice president of corporate affairs for BCom3. "And it allows us to maximize the value the new organization can bring clients as technology-enabled marketing evolves."

The new company will operate under the Novo name, and Novo CEO Kelly A. Rodriques and president Harry Schlough will continue on in their roles. Giant Step president Steve Weinswig will report to Schlough, though his exact title has not yet been determined.

As part of the merger activity, roughly 100 staffers from both companies are being laid off. While BCom3 officials refused to break down the layoff numbers for each company, Giant Step reportedly suffered the bulk of the cuts.

"The combined organization reduced headcount by approximately 30 percent so we could better align staffers with existing workload and projected revenue," says Petersen.

The final headcount for the new combined company will be 222 people.

Novo is headquartered in San Francisco, and has offices in Chicago, Detroit, Los Angeles and New York. Giant Step has offices in Chicago and New York. The New York office is expected to merge into existing Novo space while the Chicago office will remain open with a smaller number of staffers and adopt the Novo name.

While managers of both companies have reportedly been discussing the merger for several weeks, most of the employees found out about the decision when they walked into work Tuesday morning.

Petersen says the company formed a transition team made up of executives from both Novo and Giant Step, which will hash out issues and strategies for the post-merger organization.

The move comes only weeks after two other Web services firms, Scient and iXL, announced plans to merge together into one company as a way of combining resources and building more stability in their businesses, and Form Function, the company founded by former MarchFirst CEO Bob Bernard said it is merging with The Normandy Group consulting firm and portal solution provider Groundswell. Aside from integrators merging with each other, a number of larger high-tech companies have been making moves of late to scoop up Web integration assets for themselves, including companies like Novell, Compaq, Microsoft, Dimension Data and Compaq.

With so many public Web integrators still struggling to overcome poor financial performance and extremely low valuations, don't expect the M&A activity to subside any time soon, say some industry watchers.

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