A merger that worked - HINDU, Bangalore

By N. N. Sachitanand

Two wrongs do not make a right. But, in the world of software business, two minuses can make a plus if the financial performance in the past year of MphasiS-BFL Ltd. is any indication.The company was formed a year ago by the merger of two firms - the Santa Monica, California based MphasiS Corporation specialising in web-integration architecture and the Bangalore-based BFL Software Ltd., which provided Unix based client/server solutions.

They were brought together by Barings, which held 52 per cent of BFL's equity and was also a shareholder in MphasiS. The new entity provides end to end e-business solutions. The verticals that MphasiS-BFL seeks to focus on are:

The financial industry (banking, brokerage and insurance); the retail industry; media and telecommunications; technology companies; and logistics and supply chain management.

At the time of the merger, both the entities were in the red. Post merger, for the nine months ended December 31, 2000 consolidated revenues were $46.23 million and earnings before interest, tax, depreciation and amortisation of goodwill and ESOP expenses (EBITDA) $3.5 million.

Speaking to this correspondent after a board meeting in Bangalore on March 7, the Chairman, Mr. Jerry (Jaithirth) Rao,claimed, ``The results reflect the synergy between the two companies. We have been able to leverage the combined strengths, without diluting the expertise that the individual companies bring, and still be in a position to address scalability and speed - two critical areas for success in this segment. The top line and profits growth in the current quarter are in line with what has happened in the previous quarter.''

Questioned about the impact of the U.S. slowdown on the company's fortunes, Mr. Rao maintained that so far the company had neither experienced any cutback in demand for its services nor any pressure to revise its billing rates. He felt that the degree of downslide in the U.S. demand for IT services had been exaggerated and the second half of this year should see a revival of IT services demand from the U.S. Mr. Rao also pointed out that the clientile of MphasiS were not the fast fading all-virtual dotcoms but brick and mortar companies that were extending their businesses across the Internet. This business is stable and huge.

One of the initiatives is to more aggressively pursue the Europe and Japanese markets. At present, 70 per cent of the company's revenues come from the U.S., 20 per cent from Europe and the balance from Asia-Pacific. The second initiative is to strengthen and expand the India-based subsidiary, MphasiS BPO, which is into the IT-enabled services such as call centres and help desk. Third, the company will also be taking up consultancy in special areas such as testing of software processes employed by clients.