MphasiS: Fortifying future prospects

The acquisition of US-based Fortify is expected to strengthen its off-shore offering.

MphasiS’ plans to acquire US-based Remote IT operations management (ROM) company Fortify Infrastructure Services has been taken positively by the markets. The deal value od $15.5 million is the base consideration with an earn-out proposition spread over two years depending on the achievement of certain financial metrics.

Fortify, a privately held firm operating in India and the US, reported $20 million revenues in 2008-09 with gross margins of 22 per cent. It has a wide range of ROM offerings that include data centre operations, systems and application infrastructure management, managed security services, network monitoring and management, and virtualisation services.

MphasiS currently has three lines of business — BPO, infrastructure technology outsourcing (ITO), and applications. Fortify will now form a fourth business unit, with focus on remote operations and management.

Analysts say the off-shore market does not have any significant players in India. While there are several players in the off-shore infrastructure management services business, most of them follow a component-based approach and do not possess the capability to provide integrated solutions.

“The acquisition is expected to strengthen MphasiS’ position in off-shore ROM services. While most players present in this business have a component-based approach, this acquisition is expected to give end-to-end capabilities to MphasiS,” states Kotak Research.

According to the management, ROM is a $12-billion market globally. Of this, nearly $4 billion is contributed by the off-shore services market. The mid-market segment, on which Mphasis plans to focus, is worth $1.2 billion.

According to Angel Securities, around 60 per cent of Fortify's employee efforts are currently deployed onsite (US), which will act as an off-shoring lever for MphasiS to improve its margins.

After the announcement, the stock added 3 per cent and another 2 per cent on April 12. At Rs 654.90 levels, it trades at 11.9 times 2010-11 analysts’ earnings estimates.