This is no story of a wealthy Arab merchant sweeping off a little lost maiden and transforming her into following the mores that his land demands. Given that the maiden in question, is an equal (if not stronger?) partner in this alliance, the home of the newly weds will bear more than just her maiden name!

In terms of holding, Aptech’s promoter Atul Nishar offloaded his 27% stake to SSI. But in business terms, SSI has not acquired Aptech. In fact, SSI’s training business will be de-merged from its other software development business and merged into Aptech.

On February 14, J M Morgan Stanley announced SSI’s open offer to existing shareholders of Aptech for the purchase of an additional 20% stake in the company. The purchase of the shares through the open offer at Rs 49.75 per share (the same price paid for the promoter’s stake) will increase SSI’s equity holding in Aptech to over 47%, assuming full subscription and acceptance to the offer.

Even as the formalities of the deal are underway, what emerges is the formation of India's largest IT training company in terms of the number of centers and revenue (based on simple addition).

Give and take
"SSI is recognized for its strengths in short-term courses in emerging technologies and Aptech has significant strengths in long-term courses and multimedia training. Further, Aptech’s training network includes a number of international centers. The combined entity will be a market leader in the IT training industry," says SSI chairman and CEO Kalapathy Suresh.

Aptech’s chairman Atul Nishar on the other hand, speaks of his nurturing the business for over 18 years. "My dream is to see Aptech emerge as the global leader in the IT training and education business. This move will help Aptech leap-frog to the next level and bring it closer to its goal," says Nishar.

But obviously, Nishar does not want to have anything to do with the next lap of Aptech’s journey, which anyway, is no more the golden goose it used to be. Another indication of this is the all cash nature of the deal, which means that Nishar will have no transactions with the company henceforth. In fact, analysts say that Nishar was quick to realize how difficult it is to revive the failing fortunes of the IT training industry and has been keen on exiting the business for a long time.

Seeds of the merger
The first step towards this came in as early as December 2001 when Aptech’s software services business was de-merged from the training division in December 2001 and merged with another Nishar-promoted company—Hexaware Technologies.

The training division was later registered as a separate company and listed as Aptech Training.

SSI promoter Kalapathy Suresh too had expressed the possibility of exiting the training business in bad times with the SSI board resolving to separate its education and training business and consulting and software services business in July 2002.

The new look
Ultimately, as Aptech promoter Atul Nishar handed over his 18-year-old to Kalapathy Suresh, the issue of operational leadership was sealed… SSI education CEO B G Menon moved on and Aptech chief Pramod Khera would lead the merged entity. So how will Aptech’s public face be altered?

"Even now, three distinct brands and their respective divisions exist within the company—Aptech Computers for career courses, Asset International for certification, and Arena Multi-media," says Pramod Khera, of Aptech who will head the new entity. SSI will just be the fourth brand and vertical division focused on high-end short-term courses.

A basket for each egg
Given the hardships that the IT training industry has faced in the tumultuous two years gone by, this consolidation at the top end, is a good sign. But does the industry have the wherewithal to sustain four brands in the same business? For Aptech, this vertical split of distinct divisions for each of the brands is more of a de-risking strategy. For instance, the year gone by was particularly tough for Asset International as well as Aptech, with a severe drop in registrations. But Arena Multimedia saw over 6% growth.

The current brand recall for these entities also speaks of the growing maturity of the IT training market in India. From students walking into a training center asking for a "computer course" to now specifying the IT skills they want to acquire, it certainly has been a long journey. When students know what they want and are aware of what kind of IT education is available, maybe, it is possible for niche brands to exist and strengthen over the years to come.

"Aptech and NIIT are household names today, being in the mass market space, Arena is not as it operates in the specialized multi-media segment. Similarly, there is no need for SSI to attempt to command the mindshare that Aptech and NIIT do. SSI is known in the re-training segment and that should continue," points out Khera.

“Usually, such deals bring up legal issues which consume management attention before they deliver results” P Rajendran, COO, NIIT

One for the maiden name
So does that mean the acquired actually overshadows the acquirer? (Just a year ago, Hewlett Packard’s global acquisition of Compaq resulted in a strange situation in India. Unlike in the rest of the world, Compaq in India was stronger than HP’s operations in the country. The new HP in India saw the retention of a large chunk of Compaq people, including its top boss Balu Doraisamy who now heads the new HP in India.)

Well, comparisons with the IT industry’s mother of mergers quell right there. To begin with, HP and Compaq in India were neck to neck. The difference between Aptech’s size of operations and SSI’s training division is far too wide in comparison.

Besides, the number of people who will be affected by the merger is far less in comparison. Given the series of structural changes at Aptech, including the parting of ways with its software development business, Aptech’s people strength have been pared down a great deal—just over 400 people. SSI’s training division has another 435, which will be added to Aptech.

A free trip to China
The biggest gain for SSI has been Aptech’s growing presence overseas, especially China. Aptech’s China venture made revenue of $5.6 million in 2002. Aptech has seen its overseas revenue rise 50% in the last two years. Aptech has a joint venture with Chinese Ministry of Science and Technology and has translated its curriculum into Mandarin. NIIT too has more than 100 centers in China and Singapore’s Informatics Holdings is another competitor.

Apart from China, Aptech has identified South Asia, Southern Africa, North West Africa, Latin America and Central and Eastern Europe as focus areas. Given that Aptech has invested in training infrastructure in 52 countries and has close to 90 centers in China alone, does it not make imminent sense for SSI to start selling its courses in the same teaching shops?

" I have a showroom for Adidas shoes. If I suddenly start stocking Bata shoes, it will not work," says Khera, ruling out the possibility of SSI courses being taught in the same premises.

Will this work?
The global issue though, may turn out to be one of the easiest to tackle. SSI has spent over Rs 330 crore on acquisitions, excluding the current Aptech proposal, but reportedly, none of these companies are doing well. In the past, SSI acquired Albion Orion (Rs 293 crore), Indigo Technologies (Rs 13 crore), and Agenda Netmarketing (Rs 4 crore). However, this merger is different because it is the first IT education company SSI is taking into its fold.

"On the face of it, the merger seems like a great idea, as consolidation in a poorly performing industry is good. The move is beneficial for SSI as the company was becoming irrelevant in terms of size. But, it is not clear what value it adds to Aptech," comments Ganesh Natarajan, global CEO of Zensar Technologies and former chief of Aptech. Natarajan believes that given that the training market shows no signs of revival, it will take exceptional leadership capabilities and continuous communication with franchisees to pull this off.

Apart from just a fraction of the centers owned by the companies themselves, Aptech and SSI operate wholly on a franchisee model. Franchisees in India have still not recovered from the slide that began in late 2000. Expecting the IT boom to continue, they could not reconciled themselves to the shock that followed. Given their financial muscle, IT training majors could buffer the drop in revenues due to the severe crash in the number of student registrations. But franchisees, given the much smaller scale of operations and lower margins, were shaken badly. Some of them had no option but to close shop and the losses hurt. In some cases, the discontent came to the fore in the form of a revolt against the IT training vendors themselves. Little has changed in the training market since then and franchisees remain unsatisfied and unhappy.

Add to it the uncertainty that the talks of the SSI-Aptech merger brought in, and trouble on the franchisee front was to be expected. Even as Khera and his team stretch themselves to contain this infighting, the franchisee community at other training companies has seen its share of rumblings too. Given the bad market, it is bound to be.

The significant other
The SSI-Aptech combine may be #1 in terms of the number of centers and revenue, but is that what customers—in this case, students look for? Does the size of the company and the number of centers it has, really matter to a student when he enrolls into an IT training course? And more important, how does one arrive at the #1 slot? Join Aptech global revenues worth Rs 301 crore and 2,449 centers across the globe to SSI with revenues of Rs 121 crore and 759 centers. The new entity emerges with 3,208 centers and revenues worth Rs 422 crore as against NIIT’s 2,400 centers and Rs 369 crore revenue.

But this is simple addition and that too of revenues garnered in a particularly unpleasant and thus, unusual year. Also, the quarter-on-quarter results of NIIT have seen positive growth while both Aptech and SSI results have seen a dip over the quarters. The real test begins now as the merged entity grapples with integration issues and overcomes a series of hurdles before the # 1 in the next financial year is declared.

Another new entrant in the Indian IT training space is the world’s largest independent IT training company, US-based New Horizons. The company entered India in October 2002 through a joint venture with Shriram Global Technologies and Education, a Shriram Group Company. It is far too early for New Horizons to make a dent and it is certainly not the best of times for IT training companies. But given New Horizons’ plans to have 100 centers in the country over the next three years and the deep pockets of its parent, maybe the top guns of Indian IT training, will take notice.

So what does the erstwhile #1 have to say?
"It is too early to comment. The two parties may need to resolve many complex issues coming out of due diligence, extensive duplication in channels, staff positions and products. Usually such deals bring up many legal issues which consume months of management attention before the transition starts to deliver reasonable results," says P Rajendran, chief operating officer (COO), NIIT.

Not surprisingly, and though no one at the erstwhile # 1 training company is saying so, the antennae are up all the same. Welcome to the Big Fight. And let’s see who draws blood!

Manjiri Kalghatgi in New Delhi With inputs from G Shrikanth in Chennai