Insurance technology and core system software solutions company Mastek has signed an agreement to acquire Agile Tech. Acquiring Agile, which has revenues of over USD 9 million, is a significant step in execution of Majesco's aggressive growth strategy. This acquisition will close in January 2015.
Majesco will continue to male investments and build its product portfolio through acquisitions and ongoing research and development.
Mastek group CFO and director finance Farid Kazani says the company is not acquiring Agile Tech, just acquiring its business. It is a strategic acquisition that will provide the company with great amount of leverage, he says. "It comes with 20 clients (Agile’s clients) and almost 50 highly skilled employees," he adds.
Below is the verbatim transcript of Farid Kazani's interview with Ekta Batra & Reema Tendulkar on CNBC-TV18.
Ekta: Can you take us through the details with regards to the acquisition. What is the structure in terms of payout as well as how much this acquisition is worth?
A: We are not acquiring the company Agile Technologies. We are acquiring the business of Agile Technologies. This is a very sweet acquisition, pretty strategic in nature in terms of how Majesco is planning to grow its business globally. We announced the demerger of our insurance business from Mastek in terms of creating a pure play insurance group which focuses on both the property and casualty (P&C) and life business from the US and also building that globally.
Agile is a very unique acquisition because it is in the insurance space and it’s in the insurance IT consulting space which is where we needed to build on further in terms of our services for the insurance companies that we service. It’s an acquisition that we believe will give us great amount of leverage. The good part is it comes with 20 clients that they have been servicing, they have done over USD 9 million of revenue in this year and they have got around 50-odd highly domain insurance technology professionals which will improve our complete services to what we need to deliver to the insurance group across the globe.
Reema: What is the consideration that you have paid to acquire the business of Agile Tech?
A: For confidential reasons I will not be able to disclose the consideration. The only kind of input that I can share is that we structured the consideration in terms of certain fixed payment that we will be making to the promoters of Agile Tech which is roughly around 60 percent and balance 40 percent is going to be earn out over three years. The earn outs are structured in terms of the target that we build on, revenues, EBITDA and new clients logos.
Ekta: The cash on books for the company in the previous quarter ended stood at around 173.5 crore, if I am not mistaken. Can you then give us a sense that post the acquisition how much of what your current cash on books would be?
A: You will see that in our results in January while as I mentioned that there is some payout which should be made for the acquisition which is not too heavy. It is not going to significantly drop our cash flows but this business will need funds to build on both organic and inorganic. We will be able to share the cash flow details as we declare the results in January.
Reema: Will this acquisition be EPS accretive from year one?
A: Definitely.
Reema: Could you help us with what the financials of Agile Tech were in the previous year. You told us about the revenue USD 9 million, what about the margins?
A: Margins are pretty healthy. It is in the consulting business.
Reema: More than what Mastek enjoys?
A: In the insurance space there is a requirement for us to spend on product and at this point of time since our investments are heavy, we are in low EBITDA percentage in our Majesco insurance business. This business will see synergies that will bring an improvement in overall EBITDA of the Majesco combined company.
Ekta: Can you give us a sense, what the inorganic strategy of the company would be hereon for the insurance as well as solutions business?
A: We will come back to it at an appropriate time. We have aggressive plans to grow the insurance business. At this point of time Majesco is close to around USD 75 million, Agile will add USD 9 million. We want to grow to USD 100 million mark and see how best we can build that both organically and inorganically.
Reema: Any such plans for the solution side of the business. We have been talking about insurance so far. What about the solution side. Do you have inorganic plans for that business too?
A: Too early to state but the way we see it with the demerger that will happen and hopefully we should see that happening in another four-six months time. We will have a plan chalked out to even grow the solutions business aggressively.
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