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Diamond to buy Cluster for $930 million

2 min read

Diamond Technology Partners (Nasdaq: DTPI) said Monday it would buy Cluster Consulting, a European management consulting firm specializing in wireless technology, for about $930 million.

Shares in Diamond, an e-business services firm, closed at 72.88 Friday. The company has managed to avoid the problems that have afflicted other Internet consultants such as iXL (Nasdaq: IIXL), Viant (Nasdaq: VIAN) and Xperdior (Nasdaq: XPDR). In response to questions in a conference call Monday morning, Mel Bergstein, chairman and CEO of Diamond Technology Partners remained confident the company could beat the dot-com slump. "Companies say they see lengthening sales cycles. We don't see these problems. Maybe we're in a different space," Bergstein said.

"We feel pretty confident -- as we look at this quarter -- and as we look at next quarter, we're ahead of our estimates... metrics indicate we're ahead of where we would normally be going into next quarter -- our pipeline looks very good," Bergstein said on the call. The company issued a press release last Friday to reassure investors it is comfortable with analysts' estimates for its second quarter -- First Call's consensus is for 26 cents a share.

The combined company, DiamondCluster International will give Diamond wireless expertise and an established business in Europe and South America. In a conference call, analysts praised the fit of the two companies, which have virtually no overlap in terms of markets and clients. "We kissed a lot of frogs," said Adam Gutstein, president of Diamond, referring to the company's search to find a foothold in Europe. Diamond said it discovered Cluster when it lost a recruit from a top business school, something it's not accustomed to.

The deal will be immediately accretive to earnings, adding 2 cents a share to Diamond's earnings in the fourth quarter of fiscal year 2001, and 12 cents to cash earnings in fiscal year 2002. Diamond also said it has customers waiting for it in Europe, which agreed to wait until the company gained international resources.

Diamond will pay $44 million in cash and 13.9 million shares and options for shares of Diamond's Class B Common Stock. The value of the deal, based on Diamond's Friday closing price, is approximately $930 million. The majority of the options will vest over 5 years.

Bergstein, chairman and CEO of Diamond Technology Partners, will become chairman and CEO of the new company. Gutstein, president of Diamond Technology Partners, will become president of DiamondCluster.

"We now eclipse every player in the sector including traditional consultants...no other company has the strength internationally and in broadband," said Bergstein.

Since the transaction will require shareholder approval, Diamond is postponing its annual meeting, previously scheduled for September 26, and will hold a special meeting during the calendar fourth quarter of 2000, when the deal is expected to close.