(WEB HOST INDUSTRY REVIEW) — After revealing this week that investment fund GI Partners (www.gipartners.com) had acquired a majority stake in the hosting provider SoftLayer (www.softlayer.com), the latter company revealed that it is in discussions for a merger with another of GI’s hosting properties, The Planet (www.theplanet.com).
In a phone conversation with the WHIR on Wednesday, SoftLayer CEO Lance Crosby and Planet CEO Doug Erwin discussed some of the objectives for those discussions, including some timelines and specific objectives.
The merged organization, they say, would be led by Crosby, as CEO, with a senior management team comprised of executives from both companies. Erwin would resign after the merger is complete. At the moment, they say, the merged company will “most likely” be called Softlayer, though the process will include evaluating other options, including an entirely new name.
While negotiations around the SoftLayer acquisition announced this week obviously veered into discussions of the prospects for a merger, they were two separate deals, says Crosby, who, along with the rest of SoftLayer’s management team, retains a significant stake in the company following the GI deal.
“These were two separate transactions,” he says. “The transaction directly with SoftLayer was a significant investment from GI Partners. Just looking at their portfolio, you can see they’ve invested in the space literally all over, with Digital Realty and Telx and The Planet, formerly Savvis and most recently ViaWest. Although the topic [of a possible merger] was there, from our perspective, we wanted to partner with GI because of their expertise in the space.”
The companies hope to have a deal in place by the beginning of the fourth quarter this year, after which point they’ll begin the difficult process of integrating technologies. Most of the systems, they say, will be moved onto the SoftLayer platform – the most significant reason for that preference being the scalability of SoftLayer’s systems.
“In 2005, SoftLayer got basically a do-over, if you will, to build a company,” says Crosby, “and we were able to design something that was vastly more scalable than a lot of the other systems out there, simply because we didn’t have to deal with legacy install bases that companies like The Planet have to deal with. So we feel, going forward, that the system we designed at SoftLayer is much more scalable, much more automated and much more robust.
“We’re in a unique position because, remember, the 10 original founders [of SoftLayer] came from The Planet, and we created the majority of the systems that are still in operation there today. So we have a full understanding of what their capabilities are, and what ours are, and this is going to be a mixture. We’re going to have the best of breed of everything across both companies.”
Whether current customers of The Planet are going to be able to continue using the company’s Orbit portal is one of those details that should be worked out over the next 90 days.
“Lance is dead-on when he says he’s had the ability of understanding the business and creating the better mousetrap,” says Erwin, “without having to worry about any of the old systems. We had three systems [at The Planet] that we had to figure out how we were going to integrate. And I think with this new opportunity – I think it will ultimately give The Planet’s customer a better experience than they’re getting today.”
The most significant benefit to the companies of the merger is the simple advantage of size and scale. Crosby says hosting has evolved to a point where scale is required to really be innovative.
“Combined,” he says, “the companies will do about $300 million in revenues and will go from wherever they sit today, number 4 and number 10, to number two behind Rackspace. It gives us purchasing power across the hardware fleet. It gives us expertise across the staff. The economies of scale are going to be phenomenal.”
Likewise, say the two executives, the combined organization will have one of the best networks in the world, as well as one of the most experienced and talented staffs. As with many hosting industry mergers, customers from both firms stand to benefit from an increased data center footprint.
“We [The Planet] are all in Texas, either Houston or Dallas,” says Erwin. “Today, our customers have just those two choices – and London of course. But now, combined, we’ll have geographically dispersed data centers in Seattle, in Chantilly, out in Virginia, soon in San Jose and more to come. I think our geographic presence is going to drive business, just because we’re going to be back in other people’s backyards.”
The companies also share about 250 customers, whose lives Crosby says will be made easier.
According to Erwin, there are lessons that can be taken from the merger – of The Planet and EV1 Servers, in 2006 – that created that company, and applied to the upcoming project.
“I think one of the lessons we’ve learned is we’re going to have a list and prioritize and Lance is going to be a hell of a lot smarter, and coached better than I was in our effort,” he says. “There’s a bunch of work that’s being done. We’ve hired Bain Consulting to come in and help us, and there are something like six or seven integration teams that are focusing on specific sides of the business. They’re going to put together a strategic plan that is accepted by the management team. We’re going to have a roadmap. We’re going to have a plan. But here are the most important things we’ve got to worry about – we’ve got to worry about making sure that it is almost a seamlessly transparent merge for our customer base, and we’ve got to worry about growing the business.”
The process of plotting the merger is beginning immediately, with SoftLayer’s chief strategy officer George Karidis appointed the integration officer.
“He’s going to have teams of people from both companies that are kind of our superstars from both sides,” says Crosby. “And they are going to drive the integration with Bain, who we’ve retained. Basically, Bain has overseen several hundred mergers like this. They’re there primarily to make sure that we don’t make common or critical mistakes going forward. Really, this is going to be driven by the senior managers on both sides through George’s newly-appointed organization.”
About Liam Eagle
Liam Eagle has worked as a contributor to the Web Host Industry Review since its inception in 2000, and as editor since 2003. He has been editor of the WHIR's print magazine since its launch. His daily involvement in the gathering and reporting of Web hosting news and his regular interaction with Web hosting leaders gives him an uncommonly broad appreciation of the issues and tends facing the business. Through his WHIR blog, Liam spots Web hosting trends and offers opinions on the industry-wide impacts of major developments and the motivation behind big announcements. Follow him on Twitter @liameagle
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