The Hindu Business Line : IT sector heads for new round of acquisitions

Chennai, Oct. 15 In what could be the head of a fresh round of acquisition, two Chennai-centred companies — Polaris and Cognizant Technologies — today announced mergers and acquisitions deals.

Polaris Software Labs announced that it has signed an agreement to acquire 100 per cent of Laser Soft Infosystems Ltd, the Rs 37-crore Chennai-based company that specialises in banking software.

The Rs 52-crore, all-cash deal will add 40 customers and a range of software products to Polaris’ portfolio, Mr Arun Jain, Chairman and Managing Director, Polaris, told a press conference here today.

Rs 1,370-crore Polaris will pay Rs 35 crore upfront and the rest over the next two years “contingent on performance”.

Laser Soft ended last year with a net profit of Rs 4.8 crore. With Rs 18-crore orders on hand, it expects its current year’s turnover to be Rs 42 crore and net profit Rs 6-8 crore.

Mr Jain said that Laser Soft would become a wholly-owned subsidiary of Polaris — in other words, no merger for now.

Commenting on the acquisition, the Laser Soft CMD, Mr Suresh B. Kamath, said that Laser Soft wanted to take its products global, but could not do so because of the company’s small size. “We need a company like Polaris to take our product global and at a faster pace,” he said. Polaris’ shares on the NSE closed at Rs 149, a gain of 0.44 per cent over previous day’s closing price of Rs 148.35.

Cognizant Technology

Cognizant Technology Solutions will strengthen its delivery presence in India with a ‘definitive agreement’ to acquire UBS India Service Centre Private Ltd (UBS ISC), the Hyderabad-based captive service provider to the Swiss UBS Group, for $75 million. The UBS ISC currently employs around 2,000 people.

The purchase price will be funded from Cognizant’s current cash reserves, according to a filing by the Nasdaq-based IT company with the US Securities and Exchange Commission.

As part of the transaction, UBS and Cognizant have also entered into a multi-year services agreement under which, Cognizant will provide a range of business process outsourcing (BPO), knowledge process outsourcing (KPO), IT, and remote infrastructure management services to UBS divisions around the globe.

Cognizant expects the acquisition to add $442 million to its revenues over the five-year services agreement term. Last year, its turnover was $2.81 billion.

Asked what drove the valuations of target companies, Mr Lakshmi Narayanan, Vice-Chairman, Cognizant, said, “Current or past margins rarely determine valuation of the target company. It’s always the potential for longer-term capability, future revenue streams and profits.” On the capability front, he alluded to UBS ISC’s strengths in equity research and analytics. This is consistent with Cognizant’s earlier relationships, he added.

In July, the company had allied with Invensys to get a foothold in the manufacturing segment.

Mr Narayanan also felt that third-party providers such as Cognizant would be able to crank up efficiencies of a captive unit. “Efficiency improvements are possible. There is diversity of solutions and skill-sets in a third-party provider.” With a captive unit, people tend to churn out mundane work, without too many questions being asked, he said.

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