Paving The Path For Growth

Making an acquisition is like falling in love; you can't say when or how it
will happen,” claimed NR Narayana Murthy, Non-Executive Chairman and Chief
Mentor of Infosys Technologies when the software major went for an acquisition
sometime back. If one looks at the mergers and acquisitions (M&As) that have
happened in the solutions industry in the past, one would give huge credence to
these words, as the sudden annou­ncements from the companies on M&As has
surprised not few but many inside and outside the industry.

Most companies work under high pressure to compete in a highly competitive
business environment. Posting conti­nuous growth in the balance sheets, filling
gaps in the solution portfolio and making the company a multi-crore one in a few
years, have been some of the key reasons why companies in India have opted for
M&As in the past two-three years. DQ Channels tracks the status of some such
M&As that have happened in the past couple of years, with respect to the
solution provider (SP) comm­unity. While some went on to become path breakers
others left a lot to bedesired,in terms of the ideal business deals.

Vishesh Infotecnics-MPS Technosoft

Delhi-based Visesh Infotecnics,a global provider of IT products and
solutions had its own software application develop­ment team and was looking for
a solution that would complement its current offe­rings. The company was also
looking to leverage its solutions in the SaaS model for its clients, which was
another reason it considered acquiring MPS Technosoft, an expert in hosting
services like remote hosting, remote management, web hosting, domain
registration and other value-added services. Visesh acquired the company in 2004
through a Rs 12 crore deal. During the time of acquisition there were 50-60
people in MPS, who were later integrated into Visesh. “We saw an overall very
good value in MPS and their solutions complemented our offerings. We
strengthened our overall service offerings with this merger,” claimed Sanjiv
Bhavnani, CEO and MD of Visesh.

Visesh worked with MPS for almost one year before the approval came from High
Court. Both the companies understood each other, due to which the integration
process was easier than expected. “Every public listed company must get an
approval from the High Court and the time taken for the judgment was an
opportunity for us to understand each others working tempo,” Bhavnani said.

The approval for the acquisition of MPS finally came in May 2005. Bhavnani
informed that the headcount was increased to accommodate employees from MPS, and
the top-level management of MPS still works with Visesh. “MPS was earlier with
Polar Industries and they were demerging it from their group. We spoke with the
group and worked out the acquisition, as we found immense business opportunities
in MPS. Till date it has been one of our worthy investments,” claimed Bhavnani.
Visesh has acquired three companies

 till date-Infotecnics, Opentech Thai Network and MPS. For a successful
M&A, Bhavnani suggests that both the companies should sort out their cultural
differences and see to it that the services of both the companies don't overlap
with each other.

IBM-Network Solutions

IBM acquired Network Solutions (Netsol), then a Bengaluru-based
infrastructure services company, in 2005. The acquisition is considered to be
the one of the biggest among the channels till date

IBM acquired the entire equity of Netsol, making it a wholly owned subsidiary
of the company, and the deal was said to be worth close to $40 million. During
the time of acquisition Netsol was a Rs 150 crore company with presence in over
30 locations across India. The company specialized in the implementation of
convergence solutions for voice, video, security, wireless technology solutions,
WAN and LAN implementations, infrastructure management, network design and
implementation, structured cabling solutions, network management including
remote management services and IP telephony services.

The acquisition of Netsol enabled IBM to consolidate its leadership in the
Indian domestic services market by strengthening its services capabilities in
the area of infrastructure services solutions for the enterprise and mid market
business segment.

Praveen Cherian, CEO, Netsol, claimed that the strong infrastructure
management capabilities of Netsol motivated IBM to look forward to acquiring the
company.

Within two years of the acquisition of Netsol, Sudhir Sharma, the company's
Promoter and MD, quit the company and started Future IP Labs.

Speaking on the values that Netsol brought to IBM, Cherian of Netsol claimed
that its stronghold in the SMB space and its geographical spread across the
country complemented IBM's presence in tier-1 and 2 cities. “Ever since IBM
acquired Network Solutions in 2005, it has strengthened IBM's position and
expanded its reach in the domestic market, especially in the infrastructure
services and networking segments. In particular, IBM has been able to leverage
Netsol's strong portfolio of intellectual property including comprehensive
platforms like NOC-Inside which helps automate IT infrastructure management
efficiently,” he claimed.

Praveen terms the M&A between IBM and Netsol a 100 percent successful one.
“We have increased our business significantly, given the excellent relationship
and brand name that IBM brings to the table. We have added more employees,
increased our delivery presence across multiple tier-2 and 3 cities in India. We
are now able to provide better solutions and services to our customers. We are
also able to provide enhanced career paths to our employees and talent retention
has improved,” Cherianaverred.

MIEL Security-Trident Infotech

On April 1, 2006, Trident Infotech became part of MIEL e-Security, a
Mumbai-based security consultancy firm that provides information security
solutions. Post this sellout for an undisclosed amount, the company became a
product division of MIEL and the promoter of the company-Anuj Gupta, found a
seat in the board of directors in MIEL. During the time of the merger, Trident
was a Rs 18 crore company with more than 100 employees, and posted a constant
topline growth by providing end-to-end security and storage solutions. Post the
acquisition, Gupta has been appointed as Director of Sales, MIEL Security.

The solutions of MPS complemented our offerings. We strengthened our overall service offerings with this merger	Funds were required for expanding the company's presence both nationally and globally and so Precision Group sold a majority of its stake	It was a difficult decision to sell my company. But now everything has gotten bigger and better, starting from our solutions to the deployments	Communicating all information about a merger to employees, stakeholders and customers is very crucial because conflicts are likely to arise at various levels
Sanjiv Bhavnani CEO and MD, Visesh Infotecnics, New Delhi	V Murali CEO, Precision Group, Chennai	Anuj Gupta Director-Sales, MIEL, Mumbai	RK Malhotra MD,Velocis Systems, New Delhi

For Trident and Gupta, the idea behind being acquired was to move up the
value chain in providing solutions to their clients. “MIEL was a consulting
company and we were a products company. With Trident being a part of MIEL now,
we have grown to the extent of providing end-to-end solutions to clients,” Gupta
said.

Despite the fact that he built the company from scratch, Gupta was not averse
to its acquisition. On the contrary, he knew it was for the growth of his
company that he would have to take this decision. “It was a difficult decision
to sell a company that I built from scratch. But when it comes to taking a
company to greater heights, in most cases it is not possible without an M&A. It
was a confident call that I took. Now everything has gotten bigger and better,
starting from our solutions to the way of deployment,” he claimed.

Omnitech-EdVenture Systems

Mumbai-based, IT, ITeS provider Omnitech Infosolutions acquired their long
time business partner, EdVenture Systems Inc (ESI) for a consideration of $10
million during August 2006. The acquisition was basically a part of Omnitech's
plan to invest

a few crores for growing inorganically. It was looking for companies, whose
products would be a value addition to its existing product portfolio, services
and offshore opportu­nities by virtue of target companies existing capabilities
or client base.

By acquiring ESI, who was a specialist in the performance management services
like software testing, performance management and quality assurance testing,
Omnitech got a new software testing division for its company. Anurag Shah who
was managing partner of ESI was made the CEO of this new division of Omnitech.
Currently, Shah is the CEO of the Technology Services division of Omnitech. Post
acquiring ESI, Omnitech now has an inde­pendent software test lab for carrying
out testing services for its clients. “We possess adequate resources and are
equipped to execute assignments on software testing,” claimed Atul Hemani,
Chairman and MD, Omnitech InfoSolutions

According to him the acquisition has definitely paid off for the company's
growth. “Post this acquisition we have got the strength to provide complete
infrastructure, perfor­mance management services. The business availability for
our customers has increased to a greater extent. Now we are in the business of
offering complete range of solutions to IT, ITeS segments,” Hemani claimed.

Hemani looks at the global recession as an opportunity to cater complete
range of solutions, including the perfor­mance management solutions it obtained
through the acquisition of ESI. “More number of offshoring services will come
towards India. Offering performance management solutions would make a lot of
sense during this time,” he claimeD

Velocis-Silicon Integrix, OA Compserve and Pre-emptive

Silicon Integrix, OA Compserve and Pre-emptive, niche players in networking,
computing, and BPM/Portal merged to form Velocis Systems in 2007. The merger is
one of the most comprehensive cases of conso­lidation in the history of Indian
channels.

This year Velocis has managed to touch revenue of Rs 125 crore as compared to
Rs 100 crore done by its parent company last year. According to RK Malhotra, MD,
Velocis Systems the prime motive of this merger was complementation of
operations, reduction of cost, increasing solutions offerings and the ability to
take on large projects.

Malhotra feels when opting for a merger companies should look at solutions
that compliment each other and cater to the combined customer base. He also
feels that it is very important to put an HR process in place to cater to the
new challenges such as attrition, which can arise post-merger.

Another important aspect of a merger, according to Malhotra, is putting in
place the required systems and processes that would help build the combined
entity. Communicating all the required information about a merger to employees,
stakeholders and customers is also very crucial because conflicts are likely to
arise at various levels.

Info-Drive-Precision Group

Info-Drive Software, an IT and BPO services organization with a global
footprint, acquired a majority stake in Chennai-based Precision Group in
September last year.

The company acquired 51 percent stakes in Precision Infomatic including its
subsi­diaries-Precision Info-Drive, Precision Galaxy and Legend Systems for Rs 9
crore.

Info-Drive bought 1,24,900 equity shares of Precision Infomatic for Rs 720.57
a share (face value Rs 10), valuing the company at a little less than Rs 18
crore. Info-Drive's acquisition of Precision was considered to be yet another
big acquisition in the channels post Netsol's acquisition by IBM.

Info-Drive Software claimed that it was looking to leverage on Precision's
core capabilities for several large market opportunities in the Middle East
including niche areas like creating smart homes using leading edge technology
products.

The acquisition brought two more board of directors into the Precision Group.
V Murali, CEO, Precision Group sounded positive on this acquisition of majority
of stakes in his 12-year-old company. “Funds were required for expanding the
company's presence both nationally and globally and that was why Precision Group
decided on selling a majority of its stake,” he claimed.

The new management had the same aspirations and ambitions of the existing
directors and so there were no change in ideologies post the acquisition. “We
were bullish in making the service revenues and the new team also had the same
thought like us in generating revenues through the services segment, which
helped us in marching ahead. This has also enabled Precision to gain global
footprint in the services market,” he said.

Currently Murali and the other CEOs of the company-Mathew Chacko, TG Ramesh
continue to play the same role in Precision.

Religare-Asian CERC and CMS

Religare Technova is an IT arm of a multi-billion dollar diversified Indian
transnational group that has business interests in financial services, health
care and wellness, aviation and travel and IT services. Religare Technova IT
Services, which provides Enterprise IT Solutions and Religare Technova Business
Intellect provides Knowledge Management Solutions under the umbrella of Religare
Technova.

In October 2007, Religare Technova acquired substantial stake in Asian CERC
Information Technology, a Bengaluru-based firm that focuses on products and
solutions for the financial and insurance sector and is a market leader in front
office solutions for the capital markets. It also acquired a 76 percent stake in
Capital Markets Solutions (CMS), Australia-based having presence in 12 countries
in Asia and also UK. CMS provides software services to financial institutional
clients and has software products for back office settlement, portfolio
management, wealth manage­ment and other related advisory services.

Maninder Singh Grewal, CEO, Religare Technova, feels that similar passion and
culture to excel in customer relationships motivated Religare Technovo to go
forward and acquire these two companies.

“The two companies comple­ment each other in product space as well as segment
and given our group domain skills, easily achieve our goals of a leadership
position in the global IT domain. These companies were centers of excellence in
their niche areas, be it Internet Trading Platforms or products related to
financial research. Bringing them together enables each to derive maximum
leverage from each other,” said Grewal.

He also claimed that the acquisitions have enabled Religare Technovo to have
global footprint across 10 countries, where they can push more products and
services.

“Together with our organic growth, these acquisitions have formed the nucleus
of a great company which we will make a global IT powerhouse,” Grewal averred.

Religare Technova is constantly on the outlook for opportunities given that
it fits with their growth strategy. Grewal also informed that those companies
under the umbrella of Religare Technovo, including Asian CERC and CMS, would be
re-branded shortly.

Choice Solutions-Locuz Enterprise Solutions

It was the much talked about merger among the channel community. Two
Hyderabad-based solution providers Choice Solutions and Locuz Enterprise
Solutions came together to form an entity called Locuz-Choice Solutions Ltd. KV
Jagannath, CEO, Choice Solutions became the MD and Vijay Wadhi, MD and CEO of
Locuz Enterprises took on the role of Joint MD of the proposed entity. It was
also decided to have equal number of board members of both the organizations in
the new board. All eyes were on the merger, which was supposed to rule the
Andhra Pradesh solutions industry.

However, later both the companies came together and announced that the
proposed merger wouldn't take place due to several cultural disparities. It was
also decided that the two companies would be strategic partners and would
leverage each other's strengths in offering solutions to the marketplace.

During the DQ Channels SP Summit held earlier this year, the sessions on mergers and acquisitions were held by RK Malhotra of Velocis Systems and Sanjiv Bhavnani of Visesh Infotecnics. Having gone through high profile M&As themselves, the duo were best suited to conduct the sessions, in which they shared their experience on the subject

Speaking on the decision to call off the merger, Jagannath said that though
the business synergies were strong among both the organizations, there were
several cultural disparities among both the organizations. “We should have
learned the cultural practice of both the organizations before discussing the
merger and should have allowed the employees of organizations to interact with
each other. Though we realized things at the last moment we were also bold
enough to call it off, as we felt that the merger would not yield desired value
as a combined entity,” he averred.

Wadhi said that during the due diligence process both the companies
discovered that the cultural disparity might exploit the joint synergies that
the merged entity was supposed to deliver. “In view of this discovery, the
managements of both the organizations took a pragmatic view and concluded that
the mergers should be called off,” he said.

Speaking about careful process that companies should formulate while going
for merger, Jagannath and Wadhi said that both the companies should clearly
understand the objectives of the merger, culture of the organizations and
document them.

They also stressed the need of an external agency for mediating the M&As
between the two companies.

Avnet Technology Solutions-Ontrack Solutions

Mumbai-based Ontrack Solu­tions was acquired for an undisclosed amount by
New York Stock Exchange-listed Avnet Technology Solutions, which is present in
India through its Avnet Electronics Marketing Group, distributor of electronic
components servicing a large OEM customer base.

Post this acquisition during May 2008, Ontrack became a part of Avnet's
Asia-Pacific operations.

For Avnet, the aim of     the acquisition was to gain
stronghold in value-added solutions segment, which would solve the business
challenges of its customers.

“We were looking for pan-India concept and growth beyond restrictions. The
only way was to go for an IPO or VC funding, which was difficult for Ontrack at
that point of time. From our end we were facing quite a lot of issues like
attrition and lacking the potential to match MNC SPs. So we considered being
acquired by some potential company like Avnet,” said G Balakrishnan, CEO & MD,
Avnet India.

Currently, Balakrishnan and Naresh Desai, the then Directors of Ontrack, are
leading Avnet's Indian operations. The acquisition has brought in conglomeration
for both Ontrack and Avent, where the former has become the national distributor
for IBM range of products.

Avnet through the partnership with Ontrack has unveiled its Executive
Business Partner Community program where it will sign up with solution providers
who can offer Avnet's solutions around security, networking, IP tele­phony,
virtualization, conso­lidation, storage, mobility, document content management
and messaging.

“We were already dealing with storage solutions and through the current
distributor's role, we can provide value additions to our business. We are also
planning for more such vendor tie ups this year,” Balakrishnan claimed.

Ontrack would continue to act as an SI and would play the dual role of a
distributor through this partnership.

Gemini Communications-Veeras Infotek

In what is considered to be one of the major acquisitions in Chennai, Gemini
Com­munication acquired a majority (51 percent) stake in Chennai-based Veeras
Infotek in June this year.

The deal, valued at around Rs 7 crore, was funded through internal accruals
of Gemini Communications. Veeras Infotek was a strategic addition to Gemini
Communication's network security business.

“It is difficult for an entrepreneur to work in a large corporate environment”

Sudhir Sharma, Former CEO and MD of Bengaluru-based Network Solutions and present CEO, Future IP Labs on the M&A activities and the experiences he had during the acquisition of Netsol by IBM Sudhir Sharma How has the industry matured in terms of M&As? The M&A scenario has slowed down a bit in the last one year. There have been very few deals, which I am aware of in the domestic IT industry especially pertaining to channels. It is an activity that does not happen overnight and needs careful planning. Is it difficult for the promoter of the acquired company to work under a new leadership? That depends on the kind of organization that acquires the company. If it is a SMB or a similar sized organization then I suppose there could be an ability to work with some degree of independence. When you become part of a large multi-billion multi-national corporation you are obviously bound by systems and processes, which are very essential to operate in that particular scale. In large organizations groups and teams, rather than individuals, take decisions. An entrepreneur builds his company by taking decisions based on intuition, common sense and experience. Experience is again a result of a mixed bag of successes and failures. You build teams of people who are encouraged to innovate and think independently and take decisions, otherwise your business will not scale and grow. If a company has to retain entrepreneurial talent it has to nurture the same and create a conducive climate. However just as is it is difficult for an established company to change the way it does business it is also difficult for an entrepreneur to work in a large corporate environment. In such a situation how should a first generation entrepreneur overcome the difficulty? Give diligence to the organization, which is likely to acquire or be merged with your company. Define, document and agree upon the operational independence you will have post acquisition. Have a detailed integration plan, which takes care of employees, compensation, customer handling and financial processes and any planned transition. Unless this is done in a formal manner it can lead to a lot of issues later on. All organizations are faced with employee attrition issues at various levels. Hence a documented and signed integration plan is probably most important. It can be reviewed and modified and improved with passage of time but only with the concurrence of both parties. Why do promoters of an acquired company often quit and move on? I think the very reason one is an entrepreneur is because they wanted to go off the beaten track and do something interesting and challenging. When you get back to corporate life you are once again exposed to the same situations, which had frustrated you enough to start out on your own in the first place. Thus in many ways you realize it's a full circle. It is not long before you again want to challenge your creativity and move on.

For Sudarsan Ranganathan, CEO of Veeras Infotek, the move was taken keeping
the company's growth in mind. “Being a Rs 50 crore company, it is very hard to
grow to a Rs 200 crore company. Only through such moves of divesting the stakes,
can we move ahead in terms of growth,” he claimed. He also said that with the
guidance of a huge company like Gemini Communications, the market approach would
be more refined.

Ramkumar of Gemini says that there is no functional integration of
departments in these companies. “It is a strategic integration of two companies'
strengths. The two companies conduct their businesses with their own individual
identities and would continue to do so, unless there is a need felt to integrate
it. However, we have laid out formats that help us to meet often and share
thoughts, ideas and opportunities, which is creating an enjoyable, beneficial
working platform,” he informed.

On the synergies that Veeras has brought in for the company, Ramkumar said,
In Gemini, our focus area spans the entire spectrum of IT and telecom access
services today. The areas of security and availability business, which is a high
growth area, is an important focus, which Veeras gave. We also are able to
integrate the requirements of our customers between the expertise the two
companies have, thereby consolidating business with are customers further. The
combined working experience is benefiting our customers to access a wider
solutions and services range.

He also claims that the business of network and system integration is
entering a consolidation phase. There is no fun in being a small, regional
company with very limited opportunities to expand. The future for such stagnated
business models is unstable and unpredictable also. Owning a customer has
assumed great significance now and it is this that Veeras and Gemini had in
mind. Today, we are able to reap the benefit of integrating ourselves closely,
though we would continue to stand as two separate entities Ramkumar avered.

Gemini is on the look out for similar companies in other geographies of the
country, which would make it among the top SI/NI company in India.

NR SETHURAMAN

sethuramannr@cybermedia.co.in