Tribune Technology Writer
November 9, 2000
There's a new mantra at the area's biggest
Internet start-up, Divine Interventures, and it
rings with more pain than promise.
The latest theme? "Roll 'em up. Lay 'em off.
Roll 'em up."
Andrew 'Flip' Filipowski
(Tribune photo by Charles Osgood)
Founder and Chief Executive Andrew "Flip"
Filipowski has been repeating it for months,
whenever he's asked to talk about Divine's response to the market
downturn.
Investors no longer can tell good companies from bad ones, he says, so they
dump them all. That leaves opportunities for companies with cash to pick up
bargains and build bigger companies from the pieces.
Hence, Filipowski's new mantra.
"Instead of investing in new companies," he said in an interview, "we roll up
and acquire properties that are undervalued. We combine, merge and roll up
the properties."
It's a mantra for hard times. But it's not one to stir people's souls.
It's also a strategy that requires disciplined buying and operating skills and
ruthless cost-cutting.
And that's not a talent for which Filipowski is known. At his former
company, Platinum Technology, his team bought some 70 businesses in 10
years. They built a software giant that, in the end, struggled to stay in the
black. Cost-cutting was left to archrival Computer Associates, which
snapped up Platinum for $3.5 billion last year, rescuing Platinum's investors
and giving Filipowski a tidy stake he used to launch Divine.
Hundreds of talented people were sucked into Divine's orbit last year
because Filipowski's founding mantra resonated on many levels.
It appealed to civic pride and boosterism, idealism and capitalistic greed --
the itch to get rich that keeps the wheels of commerce turning.
Here's what Filipowski said in July 1999, when he laid out plans for Divine
as a new kind of conglomerate -- an Internet "zaibatsu" -- for a
standing-room-only crowd of friends and investors at a hotel meeting room
in Lisle.
What Chicago needs to compete with Silicon Valley, he told them, is "a
community of companies in cahoots with each other ... the political pull and
the pull of interrelated businesses that's necessary to improve the
opportunities for all of the folks in the community."
Divine, he vowed, would "create environments where all associated reach
their greatest potential."
But those were high-flying times ripe for grand promises. The market has
lost patience with talk about human potential. Which brings us to the new
mantra.
Divine's family of companies is shrinking. An estimated one-third of the 53
ventures in which Divine invested have folded, merged or been sold.
Attrition is greatest among the companies founded to provide services, from
recruiting to market research.
Divine is conserving its cash for roll-ups in as many as six industries. The
consolidation began in March with the merger of Farms.com in North
Carolina with eHarvest.com. It continued in September with Divine's sale of
Oilspot to Houston's FuelQuest.
Rolling up fledgling private companies in a distressed market isn't a bad idea.
Merging a firm that has great software, say, with a competitor that recruited
an industry vet to be CEO gives both companies a better chance at survival.
But orchestrating roll-ups requires different skills than investing in
entrepreneurs with ideas, warns Bain & Co. partner Michael Collins.
Many people are uninspired by Divine's new task. In some quarters, CEOs
are resisting being rolled up.
"If you were talking to a bunch of leveraged buyout investors about this kind
of strategy," says Collins, "they'd start to get excited."
Not at Divine. People there signed on for a different mission.