NaviSite Looks at Its Strategic Options

Small-cap NaviSite Inc. has retained investment banking powerhouse Goldman, Sachs to explore its strategic alternatives, including a possible sale. On the strength of the March 14 Goldman announcement, NaviSite’s stock reached a high of $2.25 a share, before falling back down to earth to close at $1.84 a share, just two cents higher than its opening price. The company’s stock closed at $1.50 per share on March 30. Andover, Mass.-based NaviSite, which has a market cap of $100 million, provides managed Web site and application hosting services that allow companies to outsource the configuration, deployment, and support of their Internet and Web site applications. The company also provides data centers and Internet connections to multiple Internet providers. In a March 14 report, David W. Baird equity analyst David Renouard said that he expected few offers for NaviSite for several reasons. First, buyer interest in the managed hosting space has dropped, he said. Second, NaviSite generates nearly 75% of its revenue from the Internet, which makes potential buyers wary of its high Internet exposure, he added. Also, he pointed out that NaviSite will have to compete with other Web hosters such as PSINet Inc., which is looking to divest its Web-hosting assets, and $115 million market cap Data Return Inc. Renouard said that Data Return is cheaply priced and hardly has any debt on its balance sheet. However, Renouard said that Sprint Corp. could be a potential buyer for NaviSite, as it is looking to expand its Web-hosting presence and capabilities. As far as a takeout range, he said in the report that a price upward of $5 a share, or $293 million, is not out of the question. Sprint did not return a call. Neither NaviSite CFO Kenneth Hale nor Goldman returned calls seeking comment. For the company’s second quarter ended January 31, it posted a loss of nearly $32 million on revenue of $28 million, compared with year-earlier losses of $11.4 million on revenue of $9.2 million.