ASP USi gets $100 million promise

By Jennifer Mears
Network World Fusion, 10/12/01

Application service provider Usinternetworking, which has been struggling to hold down costs as it searched for more funding, Thursday announced that Bain Capital Partners has promised it a $100 million equity investment.

The investment, a good sign for the ASP marketplace overall, should carry USi to profitability, the company said.

The letter of intent executed by Bain Capital, and approved by USi shareholders Oct. 8, is contingent upon a number of conditions, including a balance sheet restructuring and regulatory approvals. Bain and USi will work together to restructure the balance sheet and implement a recapitalization plan.

Under the terms of the letter, affiliates of Bain would initially invest $75 million in USi, with an additional $25 million to follow once the business reaches certain milestones. Bain's investment will "comprise most of the company's equity," USi said.

"Bain's proposed investment addresses financial viability concerns that have limited our growth," Andrew Stern, USi's CEO, said in a statement. "USi can now focus its energies on growing the business and delivering the best enterprise ASP services available."

USi led the ASP market with $100 million in revenue in 2000, according to market research firm IDC, and has a stable of hefty customers including Hershey Foods, Blue Cross and Blue Shield of Michigan and Liberty Financial.

But it has been struggling under the heavy debt it accrued by building out its own data centers. The firm got a cash infusion last fall when Microsoft, GE Capital and others invested more than $300 million.

But it has made several rounds of layoffs this year and just last month slashed an undisclosed number of its 850-strong workforce. In its Q2 earnings release, Stern said USi was actively looking for more funding.

Amy Mizoras, an analyst with IDC, says USi has "been thrown a life raft," and that's good news for the ASP industry overall, she says.

"That's a positive thing for the company and it's also a positive thing for the ASP industry in terms of consumer confidence," she says. "If someone like USinternetworking started to venture onto shaky ground in terms of whether or not they were going to be able to stay in business, I think that would have really decreased confidence in the model overall."

Bain Capital's investment in USi is its second foray into the ASP market. In May 2000, it took a 65% share of ASP Interpath.

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