3i Infotech: Inorganic tonic

When 3i Infotech, incorporated by ICICI Bank in 1993, recently bought JP Morgan’s national retail lockbox business for $10 million (around Rs 50 crore), it took its acquisition tally to 40. The Rs 1,700 crore spent on these acquisitions has made 3i Infotech a global player with close to 1,000 clients and 13,000 employees.

Its acquisition strategy has been driven by three motives: Create product capability, ramp up business process outsourcing capabilities and extend reach across geographies. Most of the acquisitions that it has done are of small and niche players which have revenues of Rs 2-100 crore. The company then makes investments in the acquired products for further development and uses its own global marketing and sales network to sell the products.

It never acquires the target fully. It acquires 51 per cent of the target and takes a seat on its board. The rest 49 per cent is left to be acquired on an “earn out” basis. “We might have merged just about 4-5 companies that we acquired; the rest continue to work independently. But the financial and business integration does happen. Many times, clients are happy to deal with the same company that they worked with,” says Executive Director and CFO Amar Chintopanth.

Close to 95 per cent of the management of the acquired companies has stayed with 3i Infotech. Ever since the company went public in 2005, it has grown at 67 per cent per annum — organic growth has been 37 per cent and inorganic growth over 35 per cent.