No Arms in Armor?

Consolidation seems to be name of the game in the Indian IT industry. Over

the last one year, growth through inorganic means has become the most preferred

route. A company that is in the spotlight for a while is Chennai-based SSI Ltd.

Close on the heels of merging its training entity with Aptech, the company has

now joined hands with the US-based Scandent Group. SSI will de-merge its

software services business and merge it with Scandent Group’s IT services arm,

based out of Bangalore. The merged entity will be floated as a new company with

both SSI and Scandent holding equal equities. This development brings to end

months of speculation about the future course of SSI’s software services

business that was going through some tough times as a result of lack of

long-term high-yield new contracts. The merged entity will be a mid-sized

software company with revenues in excess of Rs 300 crore and 1,100 employees.

For SSI, this merger could not have come at a better time. Rumor mills were

agog for sometime about the fate of the company’s software services division.

Many stories about SSI’s ‘plans’ to sell off its entire software business

were doing the rounds. However, SSI chairman and ceo Kalpathi Suresh had

executed a series of strategic decisions over the year that is seeing him off

through the tough times. First, he spun off the education division and merged it

with Aptech and had a stake in it. And now comes the de-merger of the company’s

IT services division. While these initiatives will put an end to SSI’s

dwindling revenues, it is still early to ascertain the role that SSI will play

post the merger, since the merged entity will be headed by Scandent founders (Ramesh

Vangal, founder and ceo, and Christopher A Sinclair, the non-executive chairman

of Scandent). Meanwhile, Kalpathi Suresh will become the non-executive director

on the merged entity’s board. The holding pattern of the merged entity will

be: Scandent Group 50%, Kalpathi family 15%, and the public and other share

holders of SSI 35%.

The Synergies



Here comes the rationale of the merger. SSI is strong in certain vertical

areas like government, and financial services and insurance. Despite that SSI

has been able to grab a minuscule share of the North American markets.

Meanwhile, Scandent Group has built a name for itself in the US and has got good

customer relations and delivery models. Scandent will cash in on SSI’s

vertical domain expertise that will help in enlisting new clients. Also, both

the companies feel that by being headed by an American, the merged entity

influence new customers from the region. SSI’s facilities in India, including

its disaster recovery center in Bangalore, will be used effectively by the

merged entity.

On SSI’s future post the merger, a theory envisaged now by industry

watchers is that SSI will be left with a cash in excess of Rs 40 crore and a

holding in Aptech. Kalpathi Suresh however says that it is early days to predict

the road ahead for SSI, a clear picture will emerge down the line.

Shrikanth G in Chennai