MphasiS BFL: From merger blues to a $65 million entity
Express Computers, Feb 18, 2002.
When MphasiS and BFL decided to merge back in 2000, analysts questioned the synergy between two loss making entities—BFL and MphasiS. As Jerry Rao, chairman and CEO of MphasiS-BFL describes it, the merger was one of the most daunting tasks that he had ever faced. The combined revenues of MphasiS and BFL at the time of the merger stood at $34 million.In six months, MphasiS-BFL achieved break-even; and, four quarters into the merger, it became profitable with revenues in excess of $60 million.
The company has not looked back since and is poised to become one of the most successful merger exercises in the recent times. Pankaj Mishra traces the company’s history and looks at the road ahead for MphasiS BFL.

“I was flying back to New York from Los Angeles when the idea of forging a company emerged. Having worked with Citicorp for a long time, I decided to approach them for funding. But the deal failed to materialise as we couldn’t agree on several issues,” says Rao. Looking back, he thinks that it was actually a blessing in disguise. “Had we received funding from Citicorp, we couldn’t have focussed on external clients.” ING was a common investor in both MphasiS and BFL. Naturally, it played a key role in the merger. Well before that, Rao was busy building a global team for MphasiS. Rao formerly headed Citibank’s Global Technology Development and their Global Electronic Cards divisions. “I started looking out for people with strong domain expertise and this is where my Citibank contacts came in handy.”

Rao was talking to Jeron Tas on his flight back to New York, when both of them conceptualised a global company. Tas, an ex-Citibanker is now the president of MphasiS BFL. Five senior executives at MphasiS are not of Indian origin, which is why Rao prefers it to be looked upon as a global company. “Being a truly global player has been a key driver of our working model,” says Tas. Now the company has several blue chips as part of its clientele.

“Just when we were looking to recruit professionals with good technical skills, Mohan Krishnan (now CTO of MphasiS BFL) came to me with a clear strategy. He had a team of 40 professionals with him,” recalls Rao.

Bhaskar Menon, executive vice president, Global Business Development, joined the company to assist Rao during the merger. Today, Menon looks after MphasiS’ global marketing and is always globe-trotting. “We underestimated the complexities involved in the merger. It took us 15 months to come together as a team. BFL was strong in legacy applications, while MphasiS was focussing on the high-end consulting in the finance vertical,” says Menon. Integrating the two entities was a very complex task and it involved issues related to culture, attitude and geographic distances.

MphasiS today

Menon is aware that taking on the Wipros of the world is not a realistic approach. Therefore he is trying to position MphasiS BFL as a domain specialist with expertise in finance and logistics segment. In the consulting business.

“We are focussing on three areas system integration, application lifecycle management and Business Process Outsourcing (BPO). Of these, we understand the system integration business very well. On the application management side, we have to face stiff competition from the TCS’ of the world,” Menon says. His strategy is to start with a pilot project for a large client and gradually become an end-to-end solution provider by offering services like BPO.

During the period April to December 2001, system integration, application management and BPO accounted for 35, 55 and 20 percent of revenues respectively. Menon and his team are optimistic about the BPO business and expect it to grow at more than 200 percent this year. Pricing pressure exists, but Menon denies any negative impact on billing rates, which hover around $60 for onsite and $20 for offshore projects. “2001-02 is going to be tough because of the global slowdown,” says Menon. “In these testing times, branding becomes extremely important. With our blue-chip clientele we can access good accounts. Further, our thrust on business intelligence rather than pure technical expertise is an added advantage.”

The company also witnessed an increase in its offshore projects from 29 percent last year to 37.2 percent in December 2001.

Web Services: The new growth engine

Mohan Krishnan, chief technology officer, MphasiS BFL, is one of the co-founders of the company. Web Services, according to him, are going to be the most happening thing in coming times. “Though a lot of hype is being created around Web services, they have to be understood in terms of business proposition. I believe that large traditional banks who are now scrambling to take on the ‘new economy’ banks will be looking at Web services as a competitive edge,” says Krishnan. There are four clients at present for Web services but Krishnan declines to name them. According to a recent Gartner survey, .Net based solutions will account for fifty percent of business from overall migration to the Web by enterprises.

“There are three competing architectures in Web services SunONE, .Net and BEA. We have been tracking developments in this segment for a long time and I feel that platform or architecture is not an issue with most clients. However, the J2EE platform is preferred in the Banking and Financial Services Industry (BFSI),” explains Krishnan. Krishnan is also responsible for maintaining a close relationship with leading vendors such as BEA, Microsoft and Sun Microsystems. He adds that MphasiS started working on BEA portal servers even before they were launched during 2001.

Being a systems integrator, MphasiS sees CRM as another lucrative segment. “With Siebel trying to push its customers to thin-client-based architectures, we see a huge potential in this space,” says Krishnan.

The road ahead

“I want to position MphasiS BFL somewhere between the big five in India and the same in the US. We are already ranked 9th in the Indian software industry in terms of market capitalisation. Once the slowdown bottoms out, our software services business will grow,” says Rao. He is not very keen on taking the product route at present, but according to him, if a brilliant idea comes up there will be no looking back. “We are in the process of evaluating two product ideas,” he adds.

Sometime back, MphasiS-BFL announced that it wants to become a Rs 1,000 crore company in the next few years. As Rao is not very aggressive about going for overseas acquisitions, MphasiS’s BPO business will have to play an instrumental role in achieving that goal.