Consulting Firm Sold for $10M

From the August 2, 2002 print edition

Stacey Higginbotham   Austin Business Journal Staff

A local high tech consulting firm has been purchased by a publicly traded Israeli company for about $10 million, sources close to the deal say.

Precise Software Solutions Ltd. [Nasdaq: PRSE], which develops management software to help companies boost the performance of their networks, bought Austin-based The Middleware Co. Corp. in July. Middleware's new owner, Precise, posted $55 million in revenue in fiscal 2001 and employs 389 people, according to filings with the U.S. Securities and Exchange Commission.

Sources estimate The Middleware Co. employs about 15 employees, with only three of them in Austin.

Ed Roman, CEO of The Middleware Co., declined to comment. Representatives of Precise couldn't be reached for comment.

Board members either couldn't be reached for comment or declined to comment on the deal.

The Middleware Co. provides Java training and consulting services to companies such as Nextel Communications Inc., Cisco Systems Inc. and BEA Systems Inc. It was founded in 1998 after Roman wrote a book explaining programming tool Enterprise JavaBeans, which is used to build Java applications.

Following the success of the book, Roman constructed a Web site called the ServerSide, an online community for Java programmers. The site has more than 200,000 registered users and brings in advertising revenue, says Bob Martin, CEO of JumpStart Partners, Inc. and a member of The Middleware Co.'s advisory board.

Building on the success of the Web site and book, Roman added consulting services and seminars. Middleware employees instruct trainers at large companies on using Enterprise JavaBeans.

Martin says the company has grown more than 100 percent a year and has been profitable since its founding based on the firm's ability to charge $500 to $600 an hour per consultant. Martin says the focus on a small market niche has allowed the company to ratchet up profit margins.

Another Middleware adviser -- Alan Lattanner, CEO of Sunnyvale, Calif.-based Blue Iguana Networks Inc. -- says Roman hit on a brilliant way to market his company at a low cost. By developing the ServerSide community and loosely affiliating it with Middleware, Roman created an independent Java community but still had generated branding for his company, Lattanner says.

"It turned out to be an excellent way to leverage a small marketing budget. Build a developer community and become known as an expert, and then the developers promoted [Middleware's] expertise among the developer community, which in turn promoted sales to large companies where the developers worked," Lattanner says.

Lattanner says other businesses that target specific communities also could adopt that business model to gain customers and credibility. He says the key is a catalyst such as Java.

The Middleware deal makes sense for Precise, says Damian Rinaldi, an analyst at Albany, N.Y.-based securities firm First Albany Corp. Using the consulting services offered by Middleware as an added value to customers or as a distribution channel would be beneficial for Precise, Rinaldi says.

"If some time in the future [Precise] decides to offer its customers hosted services, then the consultants and people at The Middleware Co. could make delivery of that service much easier and more efficient," Rinaldi says.

According to Bellevue, Wash.-based merger research firm The Corum Group, the acquisition of The Middleware Co. had a higher value than 38 percent of the similar U.S. deals completed in the first quarter of 2002. During the period, 408 mergers and acquisitions were executed in the software and information technology market.