Merger And Layoffs All Part Of Busy Week For E-Services

While many E-services providers are still feeling the effects of September's market fallout, Diamond Technology Partners Inc. Wednesday put the finishing touches on a merger with Cluster Consulting that expands Diamond's reach throughout Europe and infuses the consulting firm with Cluster's expertise in wireless technology. The new company, DiamondCluster International Inc., was formed in a cash and stock transaction valued at about $575 million.

Diamond's formal expansion comes a day after one E-services peer announced additional layoffs and another realigned its business strategy for the fourth quarter. E-service provider iXL Enterprises Inc. will lay off 35% of its staff, about 850 employees, as well as close or sell seven offices and liquidate certain assets in an effort to shore up its sinking business. This latest round of layoffs comes after the company cut 350 employees in September and after the departure of president William Nussey earlier this year. IXL says it's reorganizing to focus on serving large clients in the travel, financial services, consumer packaged goods, and enterprise services industries, including AT&T, General Electric, and Virgin Airlines. IXL will close or sell offices in Berlin, Denver, Hamburg, Los Angeles, Madrid, Sao Paolo, and Tokyo over the next few weeks.

MarchFirst earlier this week said it's realigning its business strategy to focus on its top clients and restructuring its operations after lowering its financial estimates for the fourth quarter of 2000. The company filed a 10-Q report this week that indicated it will need approximately $50 million in additional financing through the end of the year and another $50 million in 2001 to refinance its existing bank facilities and meet its liquidity needs. MarchFirst also projected a loss per share of 25 to 30 cents for the fourth quarter.

Diamond's position as a pure E-services strategy shop with a diversified client base has made a big difference in how the company was treated by the market, says Jon Schick, an associate analyst with Lehman Brothers. "E-service providers like MarchFirst and iXL staffed up earlier this year for growth rates that were not sustainable, and now they're finding themselves with too many people on the bench," Schick says. One good sign, according to Schick, is that the companies are taking initiatives to find stability, even if this means cutting staff and revising earnings projections.