Seuss Hopes Northern Light Will Rise and Shine
Paula J. Hane
Posted On June 2, 2003
Just 16 months after selling Northern Light Technologies (NL) to Divine, Inc. (in a stock deal said to be worth between $12 and $16 million), NL's former CEO, David Seuss, purchased the company back for just $81,000 at Divine's 26-hour marathon bankruptcy auction, held the end of April. Seuss stated that he never expected to win the bidding for NL, but had simply wanted to be present to witness what he thought would be last rites for the "most elegant search technology ever to grace the land." Seuss estimated that the technology investment in NL was probably around $40 million, though sources indicate the overall investment in the company over the years was well over $70 million.
Seuss said his bid succeeded because a coalition of interested bidders (for various parts of Divine), who had never met or worked together, joined together to counter the "stalking horse bid" (one prearranged with the company) from Golden Gate Capital (with Oak Investment Partners), which initially bid $42 million for the entire company. Deals among the coalition were done on the spot, with a handshake. Seuss described the auction scene as tense (sometimes bids had to be countered within 5 to 15 minutes), chaotic, and highly dramatic. "There were probably 100 lawyers, accountants, and advisors present. By the end of the 26 hours, the place looked like a disaster. At one point, while waiting for Golden Gate's response, the whole room hummed the Jeopardy tune."
Divine's assets were acquired by the various buyers for about $57 million in total. (The buyers include Saratoga Partners, FatWire Corp., Little Bear Investments, LLC, Golden Gate, and Outtask.) Reports indicated that Divine had "burned through" more than $1 billion before its ignominious end at the bankruptcy court. The company had never reported a profit since it went public in 2000.
When Divine purchased NL in January 2002, NL was clearly struggling for cash and for an identity. It had discontinued the free northernlight.com Web search to focus on more profitable efforts and reportedly had about 150 enterprise customers for its products. (See the NewsBreak, http://newsbreaks.infotoday.com/nbreader.asp?ArticleID=17260.) Seuss was excited at the prospect of having Divine's 300 salespeople, instead of just 15. Unfortunately, this "powerful distribution channel" never delivered on its promise. According to Seuss, no new customers were signed for NL products after the purchase by Divine. In fact, the existing NL customers left in droves under the Divine ownership—only four remained when Seuss bought it back.
Immediately after the acquisition, Seuss said he contacted the corporate customers for Northern Light's SinglePoint Market Research Portal and assured them that their "customer support would return to the exceptionally high levels characteristic of Northern Light during its days as an independent company." He then contacted a number of former NL employees about returning and has hired some of them. According to Seuss, there were 157 NL employees when Divine purchased the company, but none remaining at the time of the auction.
Seuss also plans to market the never before released Northern Light Enterprise Search Engine, a 64-bit enterprise search solution with "unparalleled scalability," featuring NL's taxonomy and classification that uses patented clustering technology. He is currently working with a former NL senior engineer on a business and marketing plan.
Concerning the third area of the company, the NL Web search engine, Seuss would not make predictions but indicated he has received a steady stream of calls from companies interested in partnering. He stated: "We have started discussions with interested parties about ideas for new approaches to delivering on the promise of Web searching, ideas that represent a collaboration between others who have done innovative work and Northern Light. These ideas may result in uniquely useful Web search services."
And what do industry folks think of the chances for NL's success this time around? One former executive said that many of the old NL management team have found positions elsewhere and will most likely not return, though some engineers may still be unemployed and interested. Several knowledgeable observers said that lack of focus and lack of a good business model were real issues for the company in the past. Some suggested that Seuss will need a fresh and experienced sales and marketing team to pull this off. Some also speculate that Seuss might spread the risk around by working with different partners for its different markets and then resell the assets at a profit.
Dr. Gregory Whitten, the former chief software architect at Microsoft who led a $20 million financing round for NL in October 2001 and served as its chairman of the board, was not involved in the Seuss repurchase. Reportedly, Whitten had urged Seuss to sell the company in the fall of 2001.
Information industry analysts from Outsell commented in a recent newsletter: "Bigger players such as Google and Yahoo! are taking their successes in the search engine arena and moving into the enterprise space as well, so there will be plenty of competition. At the same time, buyers have become more sophisticated and deliberate in their investments in their content infrastructures. This time it's customers, not investors, who will have to be wowed by Northern Light."
The Delphi Group (http://www.delphigroup.com) noted that enterprises now have more choices in classification software and greater integration requirements. The consulting company stated in an advisory e-mail: "The challenge for the new Northern Light will be to demonstrate that it can leverage its software assets and the experience of its reconstituting team to offer enterprise buyers a solution that is significantly differentiated from the competition. It also needs to find a business model that delivers the value of integrated classification and search in a manner that addresses the needs of the increasing number of intelligent content applications across the enterprise."
Seuss is certainly optimistic, however: "Hey, Northern Light is back! Now it's time to have some fun."