Bain Capital Partners LLC has agreed to help out one of the first players on the application service provider (ASP) scene, USinternetworking Inc. (USi). The Boston-based private equity firm executed a letter of intent with USi that calls for a $100 million equity investment from Bain Capital, which will take a controlling stake upon completion of the deal.
Separately, Bain Capital and other investors have agreed to sell their stake in juice maker Odwalla Inc. to the Coca-Cola Co.
The investment in USi is based on several conditions, which include the two parties working to restructure the company’s balance sheet and implement a recapitalization plan. Once that condition is met, Bain will invest $75 million in equity in USi, which will be followed by a $25 million equity investment when another set of undisclosed conditions are met. The deal may not be complete until sometime next year. Once the deal has closed, Bain is expected to combine USi’s assets with those of Interpath, which is an ASP already in the firm’s portfolio.
USi, based in Annapolis, Md., allows large companies to access their hosted software applications via the Internet rather than purchase it. Despite having an innovative idea that attracted $144.9 million for its initial public offering in April 1999, and $119 million for a follow-up offering in February 2000, USi has yet to reach profitability.
USi last week reported revenue in the third quarter ended Sept. 30 was $31.7 million. The company said it achieved EBITDA profitability for the quarter of $680,000, after including the effect of a $2.6 million restructuring charge from actions taken during the third quarter. The net loss amounted to $37.6 million, or $0.27 per share.
In November 2000, Microsoft Corp. funneled $50 million into USi while creating a partnership. Also at that time, a number of private investors promised the company $500 million in equity and debt, but that number was drastically reduced to $150 million when the stock market began heading south.
On June 30, USi held approximately $200 million of long-term debt and total liabilities of $310 million. The company’s stock traded at its peak of $99.13 per share in March 2000; at press time the stock was down to a mere $0.21 per share. Bain and USi expect the $100 million investment to carry the company through to cash flow positive.
Bain and USi did not return calls for this story. However, in a prepared statement, Bain Managing Director Andrew Balson said, “Based upon our experience in the ASP industry, we are excited about the prospects for USi.”
Bain made its first buyout in the ASP space in July, alongside Carolina Power & Light (CP&L), when it infused Interpath with $100 million in equity. However, the firm provided more than $21 million in venture funding last December for DexterUs, a London-based ASP for the financial sector in Europe.
“Bain’s proposed investment addresses financial viability concerns that have limited our growth,” said Andrew Stern, the chief executive at USi, in a prepared statement. “USi can now focus its energies on growing the business and delivering the best enterprise ASP services available.”
At press time, Coke agreed to buy juice company Odwalla from its private equity owners, which include Bain Capital, Catterton-Simon Partners and U.S. Equity Partners LP, a private equity fund controlled by Wasserstein & Co., for $181 million, in an all-cash tender offer.
Bain Capital currently owns 30% of the company, the largest privately owned stake, which it acquired when its portfolio company Saco, Maine-based juice company Fresh Samantha merged with Odwalla in April 2000.
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