Keane To Acquire SignalTree Solutions For $62M

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Keane, a technology-consulting company, signed a $62 million cash deal to acquire SignalTree Solutions Holding.

SignalTree is a privately held, Irvine, Calif.-based company with two software development facilities in India and additional operations in the United States.

Brian Keane, president and CEO of Keane, told analysts during a conference call Wednesday morning the deal allows the company, based here, to gain market share in a down market and create a broader platform from which to grow when economic conditions improve.

"All of us know these are challenging times for our country, our economy and IT services," Keane said. "But challenges always bring opportunities."

Keane also reported its financial results for its fourth quarter ended Dec. 31. Income, excluding charges, was $3.1 million, or 8 cents per share, on sales of $187.2 million. The results compare with income of $6.7 million, or 13 cents per share, on sales of $202.7 million for the same quarter in 2000.

Reported revenue excludes revenue from the company's divested Help Desk business.

Charges include $10.4 million related to the November acquisition of Metro Information Services and $8.6 million in 2000 related to restructuring activity. When considering these charges, Keane lost $3.1 million, or 1 cent per share.

Keane said he believes there is pent-up demand, particularly within Keane's Global 2000 customer base and signs of increased spending in the public sector and health care vertical markets.

He said that belief is based on discussions with CEOs and CFOs who continue to express reluctance to spend large sums of money on IT projects until they are able to see improvements in the economy in their own bottom line.

"Virtually all of our customers are seeking ways to improve efficiencies and lower costs," Keane said. "This is helping to fuel the growing market for application outsourcing."

The SignalTree transaction is expected to be completed during the first quarter and be neutral to Keane's 2002 earnings, the company said.

SignalTree, a portfolio company of Arlington Capital Partners originally founded in 1982, provides application development and management services to customers in the United States and Europe primarily from two technology centers in Delhi and Hyderabad, India. Customers Keane will gain, pending approval of the merger, include Nabisco Foods, Renault and PMI Mortgage Insurance.

Expanding critical mass to grow its customer base is nothing new for Keane. Similar acquisitions include GE Consulting in 1993 and AGS Computers in 1994. The $131 all-stock acquisition of Virginia Beach, Va.-based Metro in late November added hundreds of customers and about 1,700 billable consultants to Keane's organization.

Keane's flagship solution, application development management outsourcing, contributed just more than half of the company's total revenue during 2001.

John Leahy, senior vice president and CFO at Keane, said the company expects revenue for the first quarter of 2002 in the range of $210 million to $220 million, and earnings of 8 cents to 10 cents per share.

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