PSI's Big Buy

The consolidation of the Internet business continues.

Performance Systems International announced June 6 it plans to buy two privately held companies that sell Internet connectivity software in a deal worth $30 million.

"The key element that the acquisitions offer our company is that they will simplify the environment for the end users, our customers," said William Schrader, president and CEO of Herndon, Va.-based PSINet. The goal of making the Internet easier is the primary driver of consolidation in the Internet industry.

Companies recognize the need to get past piecemeal parts, said Donald DePalma, an analyst with Forrester Research in Cambridge, Mass. He predicts the Internet industry will see even more consolidation as Internet companies seek to offer more integrated services for their customers.

In this case, PSINet's purchase of Herndon-based InterCon Systems Corp. and Software Ventures Corp. of Berkeley, Calif., will make the Internet experience easier for users by tightening the unity between the software and the network. It will also make it easier for PSINet customers to use multimedia services, according to the company.

"The strengths of InterCon Systems and Software Ventures in software development and software distribution are an excellent strategic fit for PSINet's expertise in systems integration," said Martin L. Schoffstall, a PSINet senior vice president. "This will enable us to develop new, broad-based applications for harnessing the power of the Internet," he said.

With the Internet industry consolidating, small- to medium-sized companies face a tough decision about whether to buy or be bought. A few weeks ago when InterCon President Kurt Baumann spoke with Washington Technology, he said he hoped to take the 90-employee company public next summer. But the precarious Internet business apparently changed his plans, and when faced with the acquisition question, Baumann said it just made more sense to sell itself to PSINet. "InterCon and PSINet share the common focus of making it easier for consumers and businesses to access and use the Internet," Baumann said. Under the deal, $8.3 million InterCon and $3.8 million Software Ventures will be subsidiaries and will retain their corporate structure and labor force.

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