Of changing programmes

Krishnan Thiagarajan

FROM an overall industry perspective, the churn within the medium-sized companies in the software segment over the past year or so has been quite healthy.

It is healthy, because the sooner the players recognise their core competencies, restructure and consolidate, the better for investors to take a more focussed approach to valuation. The nascent signs of this process are already visible among medium-sized software companies. This whole process can be broadly categorised into the following heads:

Re-engineering a revival

For companies such as Silverline Technologies (formerly Silverline Industries) and DSQ Software, the last year or so has been a period of reckoning. By re-acquiring the equity holding of Silverline Technologies Inc. from Silverline Holdings Corp., US, Silverline Industries paved the way for an ADS offering. By rechristening itself Silverline Technologies, this reacquisition helped the combined entity reorient itself from a predominantly low end offshore/onsite application development, migration and maintenance play to a more balanced player with a portfolio of offerings encompassing e-commerce, CRM and systems re-engineering.

Following this reacquisition, it made its debut as the first Indian software company to list its American Depository Shares on the New York Stock Exchange. The $100-million offering was made an offer price of $25 per ADS. Though the ADS and the domestic stock have declined sharply since the offer, the proceeds and the visibility gained through this offering is being used by Silverline Technologies to expand its client base, portfolio of offering and geographic spread into Europe.

The past year or so has been a roller-coaster for DSQ Software. Facing a combined onslaught of debt recovery of close to Rs. 150 crores from creditors, such as Bank of India, Credit Agricole and Indian Bank, the entire DSQ group was tottering on the brink of disaster. As if to compound matters, the auditors, Lovelock and Lewis, refused to sign the accounts of DSQ Software in August 1999. The disillusionment and the battered image of the group led to an exodus of key DSQ Software executives. DSQ Software, as a cash cow of the Dinesh Dalmia Group, was the only company that could be used to engineer a rescue act for the group. Just when it seemed the end of the act, the DSQ group, in December 1999 and April 2000, put through two rounds of private placements to BancAmerica Equity Partners, Credit Suisse First Boston and New Vision Investments to raise Rs. 566 crores. That helped discharge the debts and put the company back on the comeback track.

By bringing in a former IBM professional as the new CEO in May 2000 and restructuring its business into three focussed SBUs -- Internet/e-commerce, telecom and networking, and CAD/CAM -- in the last few months, it is trying a revival of sorts. Recently, it also acquired San Vision Technologies for $30 millions to strengthen its foray into the e-commerce/IT solutions space.

Click here for Table

The IPO brigade

The basket of `quality' medium-sized software companies has actually grown, with the initial public offering (IPO) from Polaris Software in August 1999 and Mascot Systems in May 2000. Apart from infusing a healthy dose of competition, the entry of these two medium-sized companies has brought a sense of quality consciousness to the industry through proven systems and methodologies for `outsourcing'.

As an apex industry body, Nasscom has been talking about `smart sourcing' as a strategy for IT service companies for at least four years, and this strategy has been used successfully by frontline companies, such as Infosys Technologies and Satyam Computer Services, in the last few years. Carrying this process forward, companies such as Polaris and Mascot have consciously translated it into a branded service.

The Polaris Software 1999-2000 Annual Report talks about its outsourcing model called ENTITY (Extended Technology Facility) as a branded service built around long-term relationships with a client by providing an integrated and dedicated facility for software development. Similarly, according to the Mascot Systems offer document, it has evolved a branded SmartAPPS proprietary offshore framework. This framework helps Mascot provide reliable solutions in highly repetitive projects, emphasises the re-use of knowledge and learnings from projects to improve efficiency in project delivery and improvement of productivity among employees.

Concentrating on niches

In the medium-sized segment, companies such as Visual Soft Technologies (in the products/components arena of, say, Java Beans and COM/DCOM), Tata Infotech (in systems integration), and Rolta India (in CAD/CAM/GIS), have found a niche and are trying to consolidate in these areas. While companies such as VisualSoft have made good progress in their niche area, Tata Infotech is still finding its feet.

At the same time, companies such as Ramco Systems, Sonata Software, PSI Data Systems, R.S. Software, Aptech, and Maars Software are trying to focus their energies in e-commerce/Internet space/technology domain. Each of these companies, say, Ramco Systems with its `Interactive Architect Strategy' (which is the emerging convergence area for strategic consultants and IT enablers), Aptech with its `E-Architect Strategy' and through its subsidiary, BConnectB or Sonata Software with its focus on e-commerce and m-commerce are attempting to carve out a niche for themselves in this domain. As early-movers in this new emerging space, they hope to build competencies which will hold them in good stead in future.

Click here for Table

Acquiring/hiving off to refocus

COMPANIES such as Leading Edge Systems and BFL Software after facing a crisis of sorts in their core business of software services went into the acquisition mode. Led by strategic investors, while BFL Software acquired MphasiS Corporation, US, Leading Edge Systems put through an acquisition of eCapital Solutions. In the case of BFL Software, ING Barings, as the strategic investor, called the shots, while in the case of Leading Edge Systems, Indo Ocean Chase Capital, which had investments in both Leading Edge and eCapital, was dictating the investment strategies.

Leading Edge Systems acquired eCapital Solutions (Bermuda) alongwith its subsidiaries in a stock-swap deal and allowed Mr. Suresh Rajpal, erstwhile President and CEO of eCapital Solutions to take charge of the combined entity. Recently renamed Trigyn Technologies, it plans to concentrate on three major business areas of telecom, e-business and systems application software/financial services. After the deal, the two product businesses of eCapital Solutions -- eVector, an open multi-access mobile platform, and Inter-Site Management Systems, a telecom product to help cellphone operators manage cell sites, have been hived off into separate companies.

In much the same way, BFL Software acquired MphasiS Corporation to get a toehold in the emerging technologies arena of e-commerce and realtime customer integration. While the focus was clear in both the acquisitions, both Trigyn Technologies and BFL-MphasiS have been bogged down by post-acquisition, integration and restructuring issues, leading to an indifferent earnings performance for the available latest quarter.

Even acquisitions at the global level forced some Indian companies to refocus. Following the takeover of Digital Equipment by Compaq Corporation, the world's largest PC maker, Digital Equipment (India), predominantly a hardware player, had to consciously transform itself into a focussed software and services company. This transformation which took effect from June 27, 1999, led to Digital Equipment (India) becoming a preferred supplier to all Compaq divisions. Going forward, it aims to achieve a 50-50 revenue mix of Compaq and non-Compaq business. Over the past year or so, it has been slowly consolidating its infrastructure in the global arena by setting up marketing offices and offshore development centres in India to become a major software services player.

Another business restructuring candidate was Pentamedia Graphics (formerly Pentafour Software and Exports) which hived off its software services business (including its overseas operations) to a group company, Pentasoft Technologies (formerly Pentafour Communications), to concentrate on its core competence of `multimedia' to the world entertainment market. This hive-off, involving a purchase consideration of $205 millions, transferred the mantle of the software business to Pentasoft Technologies.