AT&T plans to acquire USi

Deal for Annapolis software firm worth $300 million

September 13, 2006|By Stacey Hirsh | Stacey Hirsh,Sun reporter

AT&T Corp. said yesterday that it plans to buy Annapolis-based USinternetworking Inc. for about $300 million. The deal pairs the national telecommunications giant with a local company that rode the tech wave from its status as Wall Street darling to bankruptcy and back to profitability.

"Certainly AT&T is the cr?me de la cr?me of the telecommunications enterprise space, so to that extent that is a feather in [USinternetworking's] cap," said Christopher King, an analysts who follows AT&T for Stifel Nicolaus & Co. Inc. in Baltimore.

Once the acquisition is complete, USi will operate as a wholly owned subsidiary of AT&T. The company will remain in Annapolis, and its work force is expected to stay the same, and possibly grow. Andrew A. Stern, USi's chairman and chief executive officer, will remain CEO, according to AT&T.

Privately held USi is in the field of enterprise software - software packages used by large organizations to manage their businesses, such as for human resources or financial management.

USi delivers enterprise software over the Internet and handles some Web hosting.

The company has about 700 employees worldwide, including about 250 at its Annapolis headquarters and 200 in India. Its customers include GMAC Commercial Holding Corp., Sunoco Inc., Wachovia Corp. and The Yankee Candle Co.

"We see a great opportunity to grow together, to enhance both our revenue and the revenue of USi by activating the AT&T sales force with USi's services," said Michael Antieri, senior vice president of business marketing at AT&T. The cash-and-debt deal is expected to close in the fourth quarter.

Founded in 1998, USinternetworking was once among the Wall Street sweethearts of tech companies.

The company raised $126 million in its April 9, 1999, initial public offering, and its stock soared that day from an opening price of $21 a share to close at $57.50. The 450-employee company quickly began growing, at one point employing as many as 1,300 workers.

But as the tech bubble was deflating in 2001, USi saw its stock price tumble, its losses widen and its work force dwindle. The company laid off about 400 workers that year. Then in October, a $100 million infusion gave Boston investment firm Bain Capital Partners LLC a controlling interest in USi.

In January 2002, USi filed for Chapter 11 bankruptcy protection and said it secured up to another $106 million from Bain Capital Partners, which would eventually own 60 percent of the company. (Other principal owners with a stake greater than 5 percent include Menlo Ventures of Menlo Park, El Dorado Ventures of Menlo Park, Calif., and Grotech Capital Group in Timonium.) Nasdaq halted trading of its stock the same day.

But USi has since bounced back. When it emerged from bankruptcy protection in May 2002, USi merged with Interpath Communications Inc., a Research Triangle Park, N.C.-based company in which Bain Capital owned a controlling interest.

The next few years were ones of slow and steady growth, including the acquisition of Strong3 Inc. of Chicago and Appshop of Santa Clara, Calif. By 2005, USi's revenue had reached $99 million, a 22 percent increase from the previous year. The company's 2005 earnings were $16.3 million, a third more than they were in 2004, according to USi.

"This is obviously a sign that USi is recovered fully from a couple of years ago and does have a business plan that works in the technology community," said Laura Willoughby, executive director of the Anne Arundel Tech Council.

Stern said the acquisition gives USi "access to a truly global footprint."

Frank A. Adams, founder and managing general partner of Grotech, said USi has been an "sensational" investment for Grotech and praised the AT&T deal.

"It is a terrific deal for everybody concerned, particularly the employees and the management because AT&T is going to run this as a totally autonomous division, and all the jobs in Maryland are secure, and indeed they will probably increase several fold as a result of AT&T putting more business into the company," Adams said.

Aaron Greenfield, president and chief executive officer of the Anne Arundel County Economic Development Corp., was upbeat about the deal as well.

"USi was a homegrown business that grew out of Edgewater here in Anne Arundel County and experienced tremendous growth," Greenfield said. "Personally I'm very excited to see that they've been so successful that AT&T is acquiring them."

King, the Stifel Nicolaus analyst, said the deal makes sense for AT&T. Anything AT&T can do to expand its service offerings in the enterprise software space would be a positive, he said.

"I hate to say that $300 million is a drop in the bucket, but it is for AT&T," King said. "And clearly they think that USinternetworking does have a specialized niche in the enterprise software space that they think is valuable."

Usi chronology


USinternetworking founded.


USi goes public, raising $126 million in its IPO.


USi lays off about 400 workers and receives $100 million in funding from Bain Capital Partners LLC, which gets a controlling interest in the company.


USi files for Chapter 11 bankruptcy protection.


USi emerges from bankruptcy protection and merges with Interpath Communications Inc. of Research Triangle Park, N.C.


USi acquires Strong3 Inc. of Chicago and Appshop of Santa Clara, Calif.


USi's revenue hits $99 million, and earnings reach $16.3 million.

Sept. 12, 2006

AT&T Corp. announces it has agreed to buy USi for $300 million in cash and debt.

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