The troubled Internet consulting company nabs a much-needed $150 million investment from equity firm Francisco Partners, which in turn will receive preferred stock in the company.
In turn, Francisco Partners will receive MarchFirst preferred stock.
The cash infusion comes as the company is laboring to right itself fiscally. Just two weeks ago, MarchFirst, created by the merger of consultancies Whittman-Hart and USWeb/CKS, said it expects to miss fourth-quarter profit targets. The company in November eliminated about 1,000 jobs, or 10 percent of its work force, as part of a restructuring program to save approximately $100 million annually beginning next year.
The company recently disclosed in a filing with the Securities and Exchange Commission that it needed to secure about $100 million in financing until early 2001 to remain afloat. Software giant Microsoft, already an investor in the company, gave MarchFirst a $12 million, interest-free loan in April.
The entire Internet consulting market has been battling difficult times as the demand for Web development and Internet strategies has shifted focus away from cash-strapped dot-coms toward more established businesses. Though the latter consulting engagements are thought to be more lucrative, analysts have said projects will take longer to complete and thus, companies won't see revenue immediately.
Under the terms of the agreement between MarchFirst and Francisco Partners, the equity firm will buy a total of 150,000 convertible, preferred MarchFirst shares for $1,000 each. About 63,053 shares will be convertible at any time into shares of MarchFirst common stock at a price of $2 per share. In total, Francisco Partners said, after all additional shares have been converted, it will own approximately 32 percent of MarchFirst outstanding shares of common stock, based on the number currently outstanding.
"Despite the recent market gyrations, we believe strongly in the attractive, long-term fundamentals of the e-services sector," Francisco Partners co-founder Neil Garfinkel said in a statement.
MarchFirst, which has seen its shares trade below $2 per share, said it expects the transaction to close before the end of the year. Francisco Partners said it has committed to providing the company with $25 million in interim financing pending the closing of the transaction, which is subject to customary conditions and regulatory approval.
In conjunction with the finalization of the deal, Francisco Partners co-founders Garfinkel and David Stanton are expected to join MarchFirst's board.