USinternetworking Inc. emerged from Chapter 11 bankruptcy yesterday with additional funding from a new investor and plans to merge with another software services company.
Annapolis-based USi, which filed for bankruptcy protection in Baltimore in January, said that it received $81.3 million in new capital from private equity firm Bain Capital Inc. and that it agreed to merge operations with Interpath, a private firm based in Research Triangle Park, N.C.
Andrew A. Stern, chief executive of USi, who will become chairman and CEO of the combined company, said that one advantage of the deal is that Interpath, because it has not been dealing with the same financial problems as USi, has a lot of business in the pipeline.
The additional capital from Bain will fully fund the business, and Bain will own roughly 70 percent of the combined firm, Stern said.
Both USi and Interpath sell Internet-based business applications online, and that market is growing, Stern said. "We had operations that worked, with a balance sheet that didn't," he said, noting USi reduced its debt from $210 million to $70 million through the bankruptcy reorganization. Interpath has no debt, he said.
The merged company will employ a total of 700 people, 520 from USi and 180 from Interpath, but that number will decline as overlapping positions are eliminated, Stern said. It will have 130 customers and $150 million in annual revenue. The merger partners will continue to do business under their current brand names while the company studies whether or not to change its brand, he said.
Relatively few firms emerge intact from bankruptcy court. There were 53 publicly traded telecommunications firms valued at more than $10 million that filed for bankruptcy in 2000 and 2001, according to BankruptcyData.com, a Boston-based market-research firm. Four emerged: McLeodUSA Inc., Motient Corp., Covad Communications and ICG Communications Inc.
For the year that ended March 31, the Administrative Office of the U.S. Courts reported that 39,845 businesses filed for bankruptcy protection, up 10.7 percent from the previous year. The office had no records on how many businesses emerged from either liquidation or reorganization proceedings.
USi, which is four years old, capitalized on the Internet boom, selling software applications online to many dot-com and e-commerce companies, many of which went out of business. The company is now selling services to medium-size and large firms that want to outsource the management of their software applications.
It still makes economic sense for companies to outsource their software needs, said Andrew Balson, managing director at Bain and a member of the combined company's board of directors. "The industry is growing substantially -- in 2001, it grew in spite of the worst [information technology] environment in the history of mankind," he said.
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