With a new par­ent, Mpha­sis eyes ac­qui­si­tion in $50-100-m space


A year af­ter shrug­ging off its HP legacy, Mpha­sis Cor­po­ra­tion, which was ac­quired by PE fund Black­stone, is look­ing to grow its busi­ness and ex­pects to ac­quire com­pa­nies in the $50-100 mil­lion space.

“The ac­qui­si­tions we plan to look for will be based on ca­pa­bil­i­ties and typ­i­cally will in­volve ‘quick burst’ ca­pa­bil­ity in a par­tic­u­lar area – say analytics,” said Nitin Rakesh, who headed Nas­daq-listed Syn­tel and took over as the CEO and Direc­tor of Mpha­sis nine months ago. Last year, Black­stone bought 60.5 per cent in Mpha­sis for $1 bil­lion from HP in one of the big­gest pri­vate eq­uity buy­outs last year.

The last ac­qui­si­tion Mpha­sis made was that of Dig­i­tal Risk in 2012, when it was still a part of HP. Rakesh in an in­ter­view with Busi­nessLine said dur­ing the last 6-9 months, the com­pany has been cen­tral­is­ing the com­pany’s ca­pa­bil­i­ties so that all its busi­ness prac­tices are made avail­able across the coun­try.

“We have man­aged to bring mo­men­tum through some good per­for­mances dur­ing the last two quar­ters and is show­ing up in our num­bers. It is still early days as well be­gun is half done,” Rakesh said.

3-pronged strat­egy

He said the com­pany has put to­gether a three-pronged strat­egy. The first strat­egy is to iden­tify the spe­cific mar­kets, which ser­vices to of­fer and the kind of dif­fer­en­ti­a­tion. Mpha­sis also wants to play in the US and Euro­pean mar­kets from where it gets in ex­cess of 80 per cent of its rev­enues.

“Right now we have taken bets on ser­vice lines like cog­ni­tive and cloud com­put­ing as ar­eas of our play. What is our dif­fer­en­tia­tor as a ser­vice provider? We be­lieve we can help clients take up dig­i­tal trans­for­ma­tion in every con­sumer-fac­ing busi­ness — like us­ing al­go­rithms that can pre­dict the like­li­hood of say a mort­gage go­ing bad,” Rakesh said.

He said dur­ing May, the com­pany had told an­a­lysts that there are four clients signed from Black­stone. There are sev­eral other com­pa­nies in the Black­stone port­fo­lio whom the com­pany is plan­ning to work with.

“Our deal wins are up com­pared with our reg­u­lar tra­jec­tory. It used to be $70-90 mil­lion a quar­ter in the di­rect busi­ness. Now last quar­ter, it was $183 mil­lion and this quar­ter $123 mil­lion. Some of this is con­tribut­ing to the wins from Black­stone.” He did not dis­close the names of th­ese clients.

Three biz com­po­nents

Mpha­sis has di­vided its busi­ness seg­ments into di­rect in­ter­na­tional, HP-DXC and di­rect oth­ers. Di­rect in­ter­na­tional are those cus­tomers who di­rectly con­tact Mpha­sis. There are three com­po­nents in this busi­ness: Di­rect core, dig­i­tal risk and prod­uct port­fo­lio. The di­rect core is the core IT work for all th­ese cus­tomers, which are about 57 per cent of the com­pany’s over­all rev­enues. That is about half of a bil­lion dol­lar of its busi­ness which is also more com­pa­ra­ble to third­party IT ser­vices com­peti­tors like tier one and two as you call them. The dig­i­tal risk was an ac­qui­si­tion the com­pany made in 2014, which is about a $220-mil­lion busi­ness to­day. The prod­uct port­fo­lio is again an ac­qui­si­tion that was made a few years ago.

As a percentage, di­rect in­ter­na­tional is about 70 per cent of Mpha­sis rev­enues. HP DXE is about 26 per cent of rev­enues and di­rect oth­ers are about 3.5-4 per cent of its rev­enues. Over a pe­riod of time, the busi­ness of the di­rect oth­ers is ex­pected to tail off be­cause the com­pany will not in­vest in that busi­ness.

In­ter­est­ingly, Mpha­sis chose to move slowly away from tra­di­tional ap­pli­ca­tion de­vel­op­ment or main­te­nance kind of projects as at that time com­pa­nies who had a larger man­power re­source pool cou­pled with low costs stood a bet­ter chance of win­ning deals. “We had to stand in queue and then had giants (like TCS) al­ready bid­ding for th­ese projects, wherein even if we got a project, it was a small one,” said Rakesh. Mpha­sis cur­rently gets 70 per cent of its busi­ness from BFSI and now HP con­trib­utes 26 per cent.

NITIN RAKESH CEO and Direc­tor, Mpha­sis YZ

“The ac­qui­si­tions we plan to look for will be based on ca­pa­bil­i­ties and typ­i­cally will in­volve ‘quick burst’ ca­pa­bil­ity in a par­tic­u­lar area – say analytics.”

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