marchFIRST Files Chapter 11 Bankruptcy

June 5, 2002
| By Katy Rent |
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GRAND RAPIDS — Less than a year after its debut as a newcomer on the Internet consulting scene, marchFIRST filed for chapter 11 reorganization bankruptcy on Thursday, April 12.

Chapter 11 provides that, unless the court rules otherwise, the debtor remains in possession of the business and in control of its operation. Debtor and creditors are allowed considerable flexibility in working together.

The announcement comes after months of rough weather for the company and ends a rapid downward spiral during which the Chicago-based consulting firm laid off thousands of employees and scrambled to raise enough money to pay creditors by selling off its business units, including the sale of its European operations.

Sales include the French advertising giant Havas Advertising, which is expected to sign a deal this week to acquire Raleigh, N.C.-based McKinney & Silver, the traditional ad agency of marchFIRST. Specifics were not revealed but the sale is expected to range between $30 million and $35 million, according to published reports.

Divine Inc. has reported it has completed its acquisition of certain assets of marchFIRST Inc., including the balance of the central region business accounts receivable, the company’s SAP implementation process, its value-added reseller unit and its Blue Vector venture capital firm.

This acquisition is the second part of a two-part transaction to acquire some of marchFIRST’s assets. At the beginning of the month Divine Inc. acquired 19 of the company’s offices, including its central region business unit.

Buyers of the company’s assets also assumed $17 million in debt.

Apparently, according to Divine CEO Andrew “Flip” Filipowski, this was not the first offer the company had made to marchFIRST to help the failing business. Filipowski stated he approached then CEO Robert Bernard late last year, but marchFIRST’s board instead accepted a $150 million equity investment from Francisco Partners, which ultimately took control of the firm from Bernard.

From there Filipowski kept within his reported style and waited until the situation was as distressed as possible and then proposed a deal.

The Internet consulting firm formed last year when USWeb/CKS merged with Whittman-Hart Inc. and experts say the collapse was due not only to the sharp downturn in demand for consulting services, but to a poorly conceived and executed merger.

Some experts called the merger ambitious and doomed it even before the start. The attempt to create a one-stop shop offering strategy, branding and technology services was hit last year when a dot-com bust wiped out business for the company’s 9,000 employees around the globe.

A spokesperson for the company said executives and its controlling shareholder, Francisco Partners, have been negotiating to sell assets since last month to raise cash while preparing for the bankruptcy filing, which will complete the wind down.

The bankruptcy is intended to give marchFIRST time to liquidate its remaining domestic business in an orderly fashion, the company said in a filing with the Securities and Exchange Commission.

The company’s stock last sold for 31 cents per share before trading was halted Thursday morning pending the bankruptcy news, down from a 52-week high of $30.12.

With a value of $4 billion in late 1999, the company now owes money to some of the biggest names in the business world. Among the company’s $427.5 million in debts to more than 1,000 creditors are Bank One’s American National Bank, which is owed $53 million; Microsoft Corp., $12 million; Credit Suisse First Boston, $10.6 million; PNC Bank, $5 million; and Herman Miller Workplace Resource, $2.9 million.

marchFIRST listed assets at $789.3 million, according to the filing. Many former employees report the company owes them money as well. Shareholders stand last in line for payouts after the creditors, and perhaps the biggest loser is Francisco Partners, the company which came to marchFIRST’s rescue late last year with a $150 million cash infusion in exchange for preferred shares.

According to the SEC filing, the company doesn’t intend to file an annual report for the year 2000, and it expects to be delisted from the Nasdaq stock exchange.

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