The Hindu Business Line : Small, mid-sized cos growing via mergers

Business strategies
Prefer teaming agreements to work with companies and their teams closely, cross sell products and services
Looking to bring in new technology capabilities in the enterprise space
Step-up cross border acquisitions to gain new customer base and add new geographies

V. Rishi Kumar

Hyderabad, Aug. 20

Following on big strides by Tier I technology companies in terms of mergers and acquisitions (M&A), it is the turn of smaller and mid-sized firms to be upbeat like their peers, as the industry consolidates.

There is a hectic activity among Tier II and Tier III technology firms, which have stepped-up cross border acquisitions to gain either new customer base, add new technology or product capability or even new centres and geographies in some cases.

Acquisition deals

A close scrutiny of some of the recent trends shows that many technology companies — Prithvi, Megasoft, Cambridge Technology, Infotech Enterprises, Four Soft, AppLabs, Prime, have either made acquisitions or were close to concluding them. More are in the offing. Interestingly, some of the deals are getting structured differently as opposed to total buy-outs.

Teaming agreements

The Managing Director of Prithvi Information Solutions, Mr V. Satish Kumar, told Business Line that they have signed up “teaming agreements” with six technology companies and expect to close them in the next few months.

“Unlike the traditional buy-out approach, we opted for this teaming up agreements with companies in the range of $3 million to $15 million. This allows us to work with companies and their teams closely, cross sell products and services and, thereby, better assimilate as opposed to total buy-out mode,” Mr Satish Kumar said.

The Chief Financial Officer of Cambridge Technology Enterprises, Mr Ramesh Reddy, said: “we continue to scout for more acquisitions and lot more aggressively. We believe that while internal growth continues, the only way out to expand is by making acquisitions.” “Illustratively, we have acquired ComServe and are closer to completing the integration process. Lately, we have also signed up to acquire Reilly Associates and this will take a while to assimilate. However, we are in pursuit of three more acquisitions and expect to close one of them shortly,” Mr Ramesh Reddy said.

Pvt equity deal

The President and Founder of Prime Technology, Mr Sudhakar Govadhanam, said the company is close to clinching a $50-million private equity deal and of this it expects to deploy $20 million in India expansion and the rest for acquisitions.

“We have identified couple of companies for acquisitions aimed at bringing in new technology capabilities in the enterprise space and expect to close at least one of them before the end of this year,” Mr Govardhanam said.

Major buys

The Chief Financial Officer of Megasoft, Mr V. Balasubramanian, said: “two of the big acquisitions we have made VisualSoft ad BCGI complement our business and proved to be strategic fit. While one offering engineering capability the other adding hosting capability, both required in the competitive telecom industry.”

“We continue to scout for more such acquisitions even as we close these, as mere internal growth is not adequate to keep pace with what business demands,” Mr Balasubmanian said.

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