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PeopleSoft--it takes a village

Aiming to bolster its services lineup, the software company agrees to acquire upstart SkillsVillage in a stock and cash deal worth $32 million.

    Aiming to bolster its services lineup, PeopleSoft on Wednesday said it has agreed to acquire upstart SkillsVillage, an online marketplace for buying services over the Web, in a stock and cash deal worth $32 million.

    With the acquisition of privately held SkillsVillage, PeopleSoft hopes to offer companies a simpler way to manage and acquire services over the Internet. Sunnyvale, Calif.-based SkillsVillage helps businesses find technology consultants to staff certain projects, manage services budgets, and automate payroll for contracted employees.

    PeopleSoft, based in Pleasanton, Calif., makes business-management software for human-resources, purchasing, manufacturing and financial applications. PeopleSoft and SkillsVillage have partnered in the past for the software maker's online-marketplace initiative.

    Under terms of the deal, PeopleSoft said it will pay about $32 million in a combination of cash and stock for all of the outstanding equity interest of SkillsVillage.

    The deal, which is subject to customary closing conditions and regulatory approval, is slated to close at the end of this month. PeopleSoft does not expect the transaction to impact fiscal year 2001 earnings, but to add to earnings in the next fiscal year.

    The deal follows a strong quarter for PeopleSoft, which unlike many other technology providers, churned out healthy financial results. After beating Wall Street's expectations for its first quarter, shares of PeopleSoft enjoyed a nice ride, jumping 21 percent at the time. Several analysts also recently upgraded their ratings on the company's stock.

    During a conference call Wednesday morning, PeopleSoft executives touted the SkillsVillage deal as a "natural" fit and a move that will help fuel the commpany's position in the services market. Rival SAP has also made a play for what the industry calls the enterprise-services automation or professional-services automation market.

    Early players include companies like Niku and Opus360, which offer sets of Web-based applications that automate billing and payroll. Opus360 recently merged with larger firm Artemis Management Systems. The companies also run online marketplaces that match qualified workers or experts with a company's project. Analysts have said that more and more businesses will look to this type of offering in order to save money and simplify the way they typically handle the process of buying services and staffing large consulting engagements.

    Monica Barron, an analyst with AMR Research, said the deal is a smart move for PeopleSoft and allows the software maker to really gain a better foothold in the nascent but extremely lucrative sector.

    "This is definitely a high-growth area," said Barron. "Companies have discovered they can get hard dollar savings for hard goods when they use procurement systems, and they're realizing they can also get the same type of savings from a services-procurement system."

    Despite healthy projections for the niche sector, Barron added that the slowing economy has also had a negative effect on many players, making it difficult for some to nab funding and remain afloat.

    Still, studies have shown that for many, businesses-services procurement is the single largest expenditure after salaries, making these types of systems more attractive to companies that want to help automate, manage and simplify that process. In turn, Barron said, the offering can help businesses slash expenses and save time.