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Arun Natarajan

Indian tech companies were in the mood for shopping overseas during the quarter ended December 2003. How does the horizon look in their line of sight?

THE CEOs of Indian hi-tech companies were in the mood for shopping overseas during the quarter ended December 2003. They spent over $172 million in either fully acquiring — or picking up significant equity stakes in — foreign companies during the period. And this without counting the $211-million offer made by Reliance Infocomm to acquire international fibre optic bandwidth company FLAG Telecom. (The Reliance-FLAG deal is yet to be closed.)

Though the largest deal for the quarter involved a pharmaceutical firm, activity in the IT and BPO space is still significant. The pharmaceuticals firm Ranbaxy Laboratories' acquisition of France-based RPG (Aventis) SA, the generic business of the US-based Aventis Pharmaceuticals Inc, for a reported 70 million euro (about Rs 385 crore) was the largest deal announced during the quarter. "The acquisition of RPG (Aventis) will be a very important move for Ranbaxy as it would place us amongst the top generic companies in the French market," said D.S. Brar, formerly CEO and Managing Director of the New Delhi-based Ranbaxy. Infosys Technologies' acquisition of the Australia-based IT services company Expert Information Services Pty Ltd for about $22.9 million was the second largest deal. The deal includes an up-front cash payment and an "earn-out" payable based on achievement of certain financial targets.

The deal represented the most significant acquisition by Infosys, which has been criticised for not being aggressive enough on the acquisitions front compared to its peers like Wipro.

Expert was founded in 1994 by its present CEO, Gary Ebeyan. It reported revenues of $34.6 million and net profit of $5.28 million for the year ending June 30, 2003. Its clientele spans the telecom, finance and retail sectors. Expert has 330 employees across its offices in Melbourne (headquarters), Canberra and Sydney. The company is to be renamed Infosys Technologies (Australia) Pty Ltd upon completion of the acquisition and it's to have K. Dinesh, Co-Founder and Director of Infosys, as its Chairman.

BPOs on shopping spree

Driven by attractive valuations and the need to scale quickly, Indian BPO companies made several overseas acquisitions during the quarter. Call centre firms based in the US and elsewhere were willing to sell out at valuations less than their projected annual revenues.

The Mumbai-based Essar Group, which has interests in a diverse range of industries, partnered with Deutsche Bank to acquire a 80 per cent stake in the US-based call centre firm Aegis Communications Group Inc. The $28.231-million investment was shared equally by Essar and Deutsche Bank. Aegis is reportedly among the largest call centre firms in the US and counts AT&T, American Express, and Qwest Communications among its clients.

Aegis has been reporting operating losses for the last several quarters. For the six months ended July 2003, the company generated an operating loss of $3.5 million. For the year ended December 2002, Aegis' revenues from continuing operations were $135.9 million, a decline of 36.6 per cent compared to the previous year. While announcing the results for the second quarter of 2003, Herman Schwarz, Aegis' President and CEO, had said the soft US economy and the "aggressive offshore competition" was hurting the company. Aegis is expected to soon set up offshore delivery centres in India.

Mumbai-based Datamatics Technologies acquired US-based BPO firm CorPay Solutions Inc., which provides outsourced corporate payables and associated support services, for about $9 million.

Mumbai-based Hinduja TMT acquired a controlling stake and management control in Manila-Philippines based call centre firm C3 for $3.9 million. C3 was reportedly valued at less than the company's projected revenues for year. C3 was earlier a part of Benpres Holding Corporation.

The Ramesh Vangal co-founded Scandent Group acquired a significant minority stake in North American Benefits Network (NABN), a US-based third party administrator of health and welfare benefit plans. Scandent has also retained the option to further increase its stake. Financial terms were not disclosed. As part the deal, Scandent's BPO arm, ProcessMind, and NABN will together pitch for BPO orders from US healthcare companies.

Lawkim UpStream Contact Management, a part of the Mumbai-based Godrej Group, acquired US-based travel BPO company UpStream in an all cash deal.

Two-way traffic

The acquisitions were not completely one-way: Overseas firms too acquired (or picked up significant stakes in) Indian companies during the quarter.

In the BPO space, for instance, Philippines-based SPI Technologies Inc. acquired Pondicherry-based publishing BPO firm Kolam Information Services Pvt. Ltd for a reported $4 million. Kolam is expected to report revenues of approximately $3.5 million for the year ending March 2004. The quarter also saw iSeva being acquired by US-based BPO firm ECE.

US-based IT consulting firm Keane acquired a 60 per cent stake in Worldzen and retained the right to increase its ownership over time. UK-based professional support services firm Capita Group Plc acquired a 60 per cent stake in Mastek BPO Limited, the BPO arm of Mumbai-based IT services company Mastek Ltd.

Pictures by Parth Sanyal

The author is Editor of TSJ Media, which tracks Venture Capital and M&A activity. He can be reached at arun@tsjmedia.com

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