Financial Daily from THE HINDU group of publications
Tuesday, Mar 07, 2006
Info-Tech - Mergers & Acquisitions
KPIT Cummins to buy CG Smith for Rs 38 cr
`A perfect fit' (From left) Mr Girish Wardadkar, President and Executive Director, KPIT Cummins Infosystems Ltd; Mr Ravi Pandit, Chairman and Group CEO; and Mr Raghav N Gulur, President and COO, CGI-Smith Software Pvt Ltd, at a press conference in Bangalore on Monday. - G.R.N. Somashekar
Bangalore , March 6
Mid-sized software firm KPIT Cummins Infosystems Ltd said on Monday it was acquiring the Bangalore-based CG Smith Software for Rs 38 crore in all-cash deal.
The acquisition of CG Smith, a 50:50 joint venture between Crompton Greaves Ltd and Smith & Co Inc, would help KPIT Cummins strengthen and consolidate its capabilities in the automotive electronics and semiconductor market for the auto sector, said Chairman and CEO, Mr Ravi Pandit.
Announcing the deal, Mr Pandit said KPIT expects to pay Rs 35 crore upfront for the 100 per cent stake and an additional Rs 3 crore based on the future performance.
KPIT proposes to fund the acquisition partially from the $9 million raised from Lehman Brothers last year and also from its internal accruals.
CG Smith, focussed on providing automotive real time embedded software services and products, has over 200 people in Bangalore. CG Smith is a premium member of AUTOSAR, a consortium of original equipment manufacturers, Tier I suppliers and component vendors in Europe. Its clientele include four global OEMs, 13 Tier I & II auto firms among others.
A zero-debt CG Smith's estimated revenues for 2005-06 is around Rs 28.8 crore with net profits of Rs 2.8 crore and a Rs 12.5 crore cash on its balance sheet. Mr Girish Wardadkar, President and Executive Director, KPIT said the deal is likely to be closed by June and the CG Smith financials were expected to be consolidated in the first quarter of FY07.
"The deal would result in a 11 per cent increase in EPS and the payback period would be about 2.5 years," he said. Avendus Advisors assisted KPIT Cummins on the deal.
CG Smith's expertise
CG Smith's strong expertise in automotive cluster and safety systems amongst others complements KPIT's strengths in power train relating to engines and body electronics. "We believe that auto and semiconductor verticals would be the key growth drivers for KPIT over next three years," he said.
Mr Wardadkar said the deal enhances the potential of KPIT's auto electronics practice to grow into a 1,000 strong team in 12-18 months from the present 700 people.
The advanced technology solutions practice consisting of auto and semiconductor is expected to contribute to 25 per cent of KPIT's revenues next financial.
Further, Mr Wardadkar said the company was exploring the possibility of setting up a development centre in Eastern Europe.
The company has two development centres in Pune and Bangalore.
Following the announcement, shares of KPIT Cummins closed 2.46 per cent higher on the BSE at Rs 371.10. The shares have gained by close to 12 per cent over the last week.
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