Tech mergers transform company into big playerv

Aquisition a
successful example of transition
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Two mergers have transformed Solution Technologies in Camp Hill into a national competitor.
Jim Bailoni, managing director of what is now Keane Inc., said that the Keane buyout offered growth potential, training opportunities and more stability.
But it’s not always to the advantage of the smaller company to sell, according to local business owners. Customer service, employee loyalty and the company’s bottom line can suffer in an acquisition.
Metro IS of Virginia Beach first bought Solution Technologies for $28 million in spring 1999. Keane Inc., based in Boston, then acquired Metro for $205 million in December.
Bailoni said that the mergers transformed the information technology company into a “tier-one” vendor, capable of competing among a whole new level of customers. He said the latest parent company has expanded company services, while allowing the company some autonomy.
“Keane has been good at helping us but not getting in the way,” Bailoni said.
Solution Technologies opened in October 1987 and offered IT management services. Bailoni said that mission stayed the same when Metro bought the company, but Keane was able to expand services to include planning and building IT systems.
With those abilities, the company became able to take over the management process of a company’s entire IT department. Bailoni said the additional services have increased revenue by 15 percent at the Camp Hill branch since December. He wouldn’t comment on the Camp Hill branch’s revenue before or after the acquisition, but said Keane’s revenues at all 40 branches amounted to $800 million in 2001.
Bailoni said that he hasn’t seen a downside yet to his company’s two mergers, but smaller companies should be wary when they consider selling out to a larger company, said Chuck Kern, a former business professor at Penn State-Harrisburg.
Kern said smaller companies should check out the larger company’s finances and risk very carefully. If the smaller company accepts stock as part of its payment, it could lose money if it’s not permitted to sell it for several years. A company that accepts payment over several years could lose out if the larger company goes bankrupt.
Another risk for small businesses is that they could lose their employees.
“If you’re a small company and they’re absorbing you, they might not need your accounting staff,” said Kern, president of accounting firm Kern and Company of Camp Hill, which works with a lot of tech firms. He said small companies should try to get contractual rights for their employees, although Kern said employee retention can be difficult to negotiate.
Tyco International Ltd. of Bermuda laid off 2,000 employees of Swatara Township-based AMP Inc. after Tyco bought AMP for $11 billion in 1999.
When Metro bought Solution Technologies, Bailoni said employees were nervous, until they realized there would be no layoffs or major changes. From an infrastructure standpoint, he said not much changed when Metro sold to Keane. Both Metro and Keane kept the same staff, although Keane has added staff by bringing in Keane employees from other branches.
Bailoni said that companies that are looking to sell to larger companies should look for similar values, ethics, business practices and culture at the larger company.
“It has to be a match, or it probably won’t work,” he said.
Since Keane did not merge the Camp Hill branch with any of Metro’s other branches, Bailoni said the culture at his company didn’t change much. Employees still had had to learn new systems, policies and processes.
“I don’t think we lost any employees because of it,” he said.
Keeping up customer service also can be a challenge.
Kay Sanders, an associate broker in Lancaster, said she had nothing but problems when Internet service provider Earthlink bought Virginia-based OneMain.com in 2000. She had originally subscribed to the Internet through Red Rose Systems Inc. of Lancaster, which became D&E SuperNet in 1995 and then OneMain.com in 1999 through a series of acquisitions.
After Earthlink took over, Sanders said she started to miss e-mail for days, and on one day, lost all the e-mail addresses in her online address book. She said she once was put on hold for two hours before getting a service representative to fix
the problem.
“It was awful,” Sanders said.
After six months, she gave up and went with D&E Jazzd, a service of Ephrata-based D&E Communications Inc., and she said she hasn’t had any problems.
Customer service is bound to change during an acquisition, but companies should make sure they keep their customers informed of those changes.
“You simply need to take time to explain to the customer what is happening,” said W. Garth Sprecher, senior vice president of D&E Communications in Ephrata.
In the mid-1990s, D&E Communications bought Com Tech of Lancaster and Cyberia of York. It bought CompuSpirit of Harrisburg and Alternate Solutions Inc. of Mechanicsburg in 2000.
In May, D&E Communications bought Conestoga Enterprises Inc. of Birdsboro for $350 million to increase its access in eastern Pennsylvania. The voice and data communications company became the country’s 20th-largest telephone company and instantly developed a “greater presence on peoples’ radar screens,” Sprecher said.
Sprecher said that acquisitions bring a customer base and “top-notch local talent.”
“You’re really buying people,” he said. “The big challenge is to make sure the people are going to stay with you.”
The company plans to make more acquisitions this year, but Sprecher said he could not say which companies it is looking at.
BlazeNet, an Internet service provider based in York, also is reportedly looking into making acquisitions, but company vice president and general manager Scott Austin said he could not give any more details.
BlazeNet bought two companies in the past two years to expand its market base and get talented workers, Austin said. BlazeNet made three purchases in 2000. In January, Austin said the company bought the dial-up customers of Wide Open in Gettysburg to expand its customer base. He said that Blazenet bought Krone Group Inc. of Wormleysburg in May and Judd’s Online of Winchester, Va., in October to tap into its talented work force.
Austin said other buys were motivated by a need to cut infrastructure costs. By acquiring neighboring companies in the same region, he said the company has been able to expand services by using the other company’s physical network.