The Hindu Business Line : Megasoft close to acquiring US co

Following the announcement of the merger plan with VisualSoft Technologies Ltd, Chennai-based Megasoft Ltd is close to finalising an acquisition in the US valued at about $20 million.

The Managing Director of Megasoft, Mr G.V. Kumar, said "we expect to announce the acquisition of a company engaged in the telecom space within four to six weeks from now. Even as this process was under way, the VisualSoft development took place."

Answering queries, Mr Kumar said "the proposal for merger with VisualSoft came through an investment banker after the AppLabs Technologies merger did not materialise with VisualSoft. At that time, we felt that we had similar interests and that there would not be much synergies. But at the current valuation, and with 700 people, it had become attractive," he said.

VisualSoft is valued at Rs 172 crore and, given the current market prices, the likely ratio is that eight shares of VisualSoft will be replaced with five shares of Megasoft. Conservatively, the assets of VisualSoft have been estimated at Rs 250-260 crore.

"The merger process of Megasoft and VisualSoft, subject to approval of shareholders and Court nod, is likely to be completed within four months. While Megasoft is on course to achieving revenues of Rs 170 crore this year, VisualSoft is set to post Rs 100 crore. The combined entity is likely to touch revenues of Rs 400 crore in fiscal 2007. This acquisition would advance our business projections by one year," Mr Kumar said.

The combined entity will have about 1,200 people and is poised to add about 600 to 800 people within a year, he said.

Apart from the US acquisition, Megasoft plans to leverage the assets of VisualSoft and make another acquisition of a relatively larger company in the $40-million bracket later this year.

Mr Srini Raju, in his individual capacity, and as an investor through iLabs, would hold up to 25 per cent of the total equity in the combined entity.

Post the merger, the equity of Megasoft would go up to 4.6 crore, as against 3.2 crore.

Currently, about 45 per cent of the Megasoft revenues and 80 per cent of the profit comes from its telecom business and the rest from services.

"Through VisualSoft, we expect to add about 300 telecom experts, which will help us bid for higher outsourcing deals. VisualSoft brings product development expertise working with companies like Motorola and First Mutual. This is complemented by SEI CMM Level 5 facilities at VisualSoft," he said.

Interestingly, Megasoft shares ended the day lower at Rs 131.75 as against previous close of Rs 138.55 and VisualSoft shares ended higher at Rs 92.90 (Rs 85.90) at the NSE.

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