Infotech Enterprises announced that its wholly-owned subsidiary, Infotech Enterprises America has signed a definitive agreement to acquire IT service management and service company Softential, Inc in an all cash deal. The buyout will allow Infotech to provide better services to its telecom clients and add to its margins.
Speaking to CNBC-TV18's Latha Venkatesh and Sonia Shenoy about the acquired company, Krishna Bodanapu, President & COO, Infotech said Softential's 2013 revenue stands at USD 17-18 million. The price paid for the buyout includes 1.1 times of its 2013 revenue plus another performance-based payout component based on EBITDA over the 12 months. The company has USD 110 million in cash and part of it will be used to fund the acquisition, Bodanapu said.
Below is the verbatim transcript of the interview:
Q: How much have you gone ahead and paid Softential, both in terms of a direct payout as well as what the performance based payout and where have you got the funds from?
A: Softential is roughly around USD 17-18 million revenue business. Our deal size is about 1.1X of revenue and there is also an earn out and I cannot talk about the earn out because there are some confidentiality issues around it but there is earn out that is based on the EBITDA that they will deliver in the first twelve months of operations. It will add to our EBITDA, it is a pretty good margin business. Their operating margins are better than our operating margins so that will be additive to us. In terms of how we have funded it, we have about USD 110 millions of cash within the organisation. So obviously we use some of that money and for tax efficiency reasons we also have a debt that we have taken and basically it is a one-to-one debt to equity funding that we did.
Q: In rupees terms how much will they add to your EPS and more importantly how will FY15 pan out when the synergies also should kick in?
A: I don’t have the exact number in rupee terms that they will add to us.
Q: Ballpark percentage?
A: The ballpark percentage is expected to be roughly about 5-6 percentage. But in terms of FY15, we are not expecting many synergies in FY15 just because of the first twelve months of the business and the integration of the business. We believe the synergies will kick in from FY16 but it is a good business even in standalone sense and therefore even from that perspective, we believe it will add to us in this coming year. But we haven’t expected too many synergies just knowing this market and how things work, it will at least take 12 months to cross sell our services possibly get a little bit of cost synergies etc.
Q: In terms of margins wise synergies, FY16 onwards, how much could your margin profile go up because I understand this is the largest acquisition made by Infotech Enterprises, so from the current 20 percent margins that your business is sitting on, how much could it scale up to?A: It is still too early for us to predict that we have done a business case but it wouldn’t be prudent to just talk around the business case because we need to understand the business etc, but we believe that going forward it will add to our margins. I cannot say how much yet because it wouldn’t be prudent without looking at the business from more of an operating level rather than financial level, which is what we have done.Q: Just a word on your general business outlook. We have seen better than expected job numbers from the US and therefore some upgrades of US gross domestic product (GDP) perhaps are round the corner, how is business looking, will it be better than what you thought maybe a couple of months back?A: I would say it is better than what we thought. A lot of this has been factored in but what we thought would happen is happening which is quite positive because we were and a lot of our customers were quite bullish on their business and therefore, we were bullish on their business and we are seeing that whatever we had predicted or whatever we had anticipated is happening or in line with what is happening.Q: You mentioned that you have about USD 110 million of cash, are their any more acquisitions that are on the cards or anything in 2014 itself?A: In FY14, I would be surprised if there is anything else but yes, there is a big pipeline and we are working towards the pipeline.Q: No, in calendar year 2014?A: In calendar year, we might - as I said previously with the acquisitions to happen, you can never predict but we have a strong pipeline. So I wouldn’t be surprised if something else happens this fiscal.
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