NaviSite Acquires SureBridge to Boost CRM Capabilities

Hosted business application specialist NaviSite has agreed to purchase fellow ASP SureBridge, the latest move in NaviSite 's campaign to expand its range of expertise. The move represents the sixth such purchase since September 2002. "We are acquiring similar companies with product synergies and operational cost synergies," says Will Scott, NaviSite vice president of products and services. More important, NaviSite picks up SureBridge's established expertise in midmarket CRM, particularly PeopleSoft and Microsoft offerings. "It complements our product set very well. There is little overlap, so we are excited about going back to existing customers with the SureBridge offering," Scott says. Today NaviSite provides a range of business application services ranging from email to backup to general-purpose application hosting; SureBridge focused on CRM and supply chain expertise. NaviSite is counting on customers from both companies turning to outsourcing to solve a widening range of IT problems. "Clearly, SureBridge clients have a propensity to outsource, and SureBridge will be a trusted vendor of theirs," Scott says. By adding SureBridge's expected $44 million in 2004 revenues, NaviSite expects to break the "psychological $100 million revenue target" with $125 in annual revenues, Scott says. "We want to be of similar size to the [midmarket] companies we are trying to sell to, so we are delighted with not only the increases in revenue, but the profit synergies that come as a result of the acquisition as well." Not counting the value of unspecified SureBridge liabilities absorbed by NaviSite, more than 70 percent of the acquisition is being funded by promissory notes totaling $39.5 million, which has raised some eyebrows. "It was an expensive acquisition--that's a lot to lay down for [SureBridge]," says Louis Columbus, senior analyst for AMR Research. "It's probably a deal they wanted to pull together so fast that they put together the promissory notes, and now they're going to look for the cash." The rest of the deal will be paid by 3 million shares of NaviSite stock. Columbus feels that the acquisition, designed to bolster NaviSite's hosted CRM portfolio, is a sure sign of the growing importance of the hosted model. "There's a land-grab by CRM vendors to get the [hosted] user count driven up," he says. "The world just became more interesting for the surviving license-only CRM vendors."