Hexaware sets aside $250-300 mn for acquisitions over the next three years

Mid-tier information technology (IT) services firm said it doesn't see any value in merging with NIIT Technologies, as being speculated by many

Mid-tier information technology (IT) services firm Hexaware has said it doesn’t see any value in merging with NIIT Technologies, as being speculated by many after its investor Baring Private Equity Asia agreed to acquire majority stake in the Noida-headquartered NIIT Tech earlier this month.

According to Hexaware’s Chief Executive Officer R Srikrishna, the Mumbai-based company has provisioned for $250-300 million to acquire firms over the next three years as it seeks to tap more into customer transformation and cloud-based projects. Most of its $36 million worth of new deals signed in the last quarter have come from these service areas. Baring PE, which is a majority stakeholder of Hexaware, initiated a move to buy 30 per cent stake from NIIT Tech’s founder promoters for $381 million, followed by an additional 26 per cent from public shareholders through an open offer.

Experts are of the opinion that integrating these two companies could bring about the required scale and synergy for both companies as Hexaware has a strong BFSI base. According to Srikrishna, Baring’s investments in Hexaware and NIIT Tech were made through different funds within the PR major and were led by different strategies.

“There is no value in the acquisition (of Hexaware) for us. It is also structurally hard for Baring to merge because we have invested from a fund that was started around nine years ago. The investment (by Baring) in NIIT Tech is from a fund that has just started,” he added. Baring bought majority stake in Hexaware in 2013 and holds almost 63 per cent stake at present. In addition, Srikrishna said, NIIT Tech has Baring’s commitment against a merger for two years and beyond that they don’t know what can happen.

As far as Hexaware’s acquisition plan is concerned, Srikrishna said the company was looking at synergistic acquisition for which it is setting aside funds. “As for our own acquisitions, we will spend $250- 300 million on merger and acquisitions over the next two-three years. It will be in areas of transforming customer experience and cloud,” he added. First preference is towards customer experience and the focus area would be US-based companies. However, he didn’t write off possibility of acquisitions in Europe as well which is where the company is expecting fastest growth.

In its Q1 results announced on Wednesday, Hexaware reported 2 per cent revenue growth (constant currency term) on QoQ basis while its operating margins at 14.9 per cent, however, was down 40 bps sequentially, was mostly in line. The margin was hit mainly owing to higher subcontracting costs (-80bps), visa costs (-30bps) and forex (-40bps) which was partially offset by lower sales and general administration expenses (+100bps). It posted Rs 1,264 crore in revenue and a profit of Rs 138.5 crore.