For two years, James Corey, founder of Potomac Partners Management Consulting LLC, ran a tiny Web consulting company from his home in Great Falls.
He recently became a director of a 720-person e-commerce behemoth, with revenue surpassing $50 million, and amassed a small personal fortune -- at least on paper. All this and he hasn't had to leave the comfort of his home office.
Potomac Partners was one of two local companies -- the other was RSI Group Inc. of Herndon -- gobbled by Luminant Worldwide Corp., which was founded in August 1998 by former CBS Corp. chairman Michael H. Jordan. Luminant, which has changed names six times, was nothing but a name until Sept. 16, when it conducted a roll-up, the act of going public in conjunction with buying multiple firms; the idea is to form an instant company by combining several.
The roll-up is a common maneuver in the $10 billion Web services industry, which has been fighting to keep up with demand from large and small customers alike. The market could grow to $78 billion in 2003, according to Pooneh Fooladi, an Internet services analyst for IDC in Framingham, Mass.
"Internet service projects . . . are not just designing front-end Web sites anymore," Fooladi said. As a result, "Web design firms are now scrambling to gain systems expertise" and vice versa, she said.
There are some "pure plays" in the industry, Fooladi said, referring to companies such as San Francisco-based Scient Corp., which started out a full-services firm.
But other firms, such as USWeb Corp. in Santa Clara, Calif., and Razorfish Inc. of New York, have used the roll-up strategy to herd the necessary talent and resources.
For Corey, glomming onto a larger entity made sense for that reason, even though his firm was already set to triple its revenue this year. Potomac Partners had 1998 revenue of about $5 million.
"Potomac Partners did a strategic planning exercise . . . early this year, and we concluded that we needed to broaden the service line we were offering," Corey said. "Clients expect more than just good ideas . . . they expect help in executing the plan once it's developed."
Corey considered hiring talent to fill the void, but a year ago one of his board members suggested he meet with an acquaintance, Luminant chief executive Guillermo Marmol, and other Luminant representatives. This month Luminant bought the employee-owned 30-person company for almost $56 million in cash and stock. Although it is one of the smallest companies acquired in terms of employees, Potomac Partners has a valuable contract with United Airlines and no debt.
RSI Group received $17.6 million in stock and cash.
Getting selected as one of the "Luminant Eight" was not an easy process, said Corey, whose firm competed against 100 others for selection. The screening process was thorough, Corey said, and included cultural, as well as financial, due diligence.
Corey spent days at a time visiting almost all of the players in the Luminant deal, at offices in New York, Dallas, Houston, and elsewhere around the country.
Corey, a former chief operating officer for AT&T Solutions who spent his earlier career working for consulting giants such as McKinsey & Co., left to form Potomac Partners because he sought opportunities in electronic commerce. He said his entrepreneurial adventure will not be cut short by the Luminant absorption. Unlike some roll-ups, he said, Luminant is focused on organic growth, not simply acquisitions.
"Many people think of roll-ups as an addictive business model, that the only way to continue the success is to continue to acquire," he said. "That is not our business model."
Bruce Grant, who founded RSI Group in Dallas but now runs it from Herndon, said the biggest challenge in a roll-up is presenting a common vision to the outside world, including investors and customers.
"Thank God for the Web," he said. He and the other company executives have been able to stay on track by constantly communicating via Intranets, or internal Internets.
Grant, whose company is a consultant to large companies on electronic commerce infrastructure, came to the realization after 15 years that he could no longer keep pace with his clients' electronic commerce needs.
"A few years ago, the typical $500 Web site became a $50,000, then a $300,000 project," he said.
Grant, a "mediocre mountaineer" whose goal is to climb all of Colorado's "fourteeners," or mountains higher than 14,000 feet, said he was a bit worried about entering into the roll-up strategy.
Grant's primary concerns are the logistics of working with scattered offices and keeping his 140-person staff's travel time to a minimum.
"They don't want to travel and don't have to anymore," he said. "They can go down the road and get another job."
Because the company is in a quiet period as the IPO approaches, Grant was hesitant to talk much about the financial side of his deal. But he did say he'd be "yelling from the rooftops" with pleasure if he were not so restricted by Luminant lawyers.
As for how his own life will change, after 15 years of working for a company that never broke the $17 million mark in revenue, he remained low-key.
"We have a long-term stock vesting plan here," he said, adding that he will stick around for a while, despite sometimes feeling close to retirement age (he is 48) next to some of the younger techie executives.
Corey, too, was hesitant to talk about how his life might change and would only say, "rich is a relative term."
Grant said he might fulfill one longtime dream: "I might fix the basement. We've had a leak there."