Spotlight

Mindteck takes the acquisition route

The company has come a long way in creating a niche for itself, says Vinutha V.

Mindteck (India) has an interesting pedigree. Taib Bank, an investment bank with a presence in the US, Middle East, Britain, India and East Europe, invested heavily in IT companies, including three businesses in India—Hinditron Informatics, Nicco Infotech and Mindware. A separate management, Mindteck, handled the operations of the three companies, and when integration became an issue in 2003, Mindteck brought together all the three operations under a single banner: Mindteck (India) Limited.

Initially, when the change in management took place, the organisation stepped up the focus on software development and consultancy services in the high growth areas of embedded software and Internet or Java applications. Unfortunately, post-9/11, the market conditions were not favourable, and the company did not perform as expected. From then on, Mindteck started providing services in embedded software, and Internet and Java technologies, to clients in the areas of industrial automation, medical electronics and telecommunications. It now focusses on the high-value, high-growth areas of embedded technology and e-solutions to position itself high up the value chain.

All for one

After the re-structuring, the operations of the three firms became the core of Mindteck-embedded systems, enterprise consulting services (SAP), and IT services. The embedded space was derived from Hinditron, and was further strengthened by focussing on the entire product lifecycle from conceptualisation to transfer of design to manufacturing and continuous engineering—or handling the entire product lifecycle. In embedded systems, the company offers the range of product engineering, embedded software development, electronics design, verification and validation. Taib’s holdings in Nicco Infotech has brought in enterprise consulting services that help customers in critical post-implementation requirements such as application support, implementation of add-on modules, application integration and upgrades. Additionally, it offers uninterrupted access to reliable, informed, and dedicated support and consulting services. Through Mindware, Mindteck has been able to bring in IT services that enable it to identify customers’ applications that can be offshored, analyse and identify approaches to increase productivity from IT-enabled business processes, and streamline technology by either consolidating or modernising the IT architecture and platforms.

Complete turnaround

"Since our expertise lies in integrating and configuring acquisitions, buying out companies in the range of $20 million to $30 million makes business sense for us" - P A Ananthanarayanan Group Chief Executive Officer Mindteck

Mindteck encountered many challenges as it lacked a unified strategy; also, the market was not stable. Says P A Ananthanarayanan, Group Chief Executive Officer of Mindteck, “Until October 2003 we were making a loss of up to $1,00,000 a month, but then started seeing a positive trend, started making profits, and now Mindteck is in a growth phase.” Once it consolidated its business, the company started seeing customer traction from the likes of Fluke, OI Corporation, Agilent Technologies, Network Appliances and Teledyne-ISCO. From the existing business areas—October 2005 onwards—it started a new venture of SAP support for which it has got customers such as KBR-Halliburton and HP. In fiscal 2004-05 the firm recorded revenue of $13.6 million, and expects to close fiscal 2005-06 (results expected in July 2006) with $18 million to $20 million.

To boost its growth, Mindteck looked at acquisitions in a big way. Singapore-based Netsys was acquired in December 2004; this company complemented its strengths by serving HP customers in that country. Ananthanarayanan says that the purchase helped to acquire 100 employees and make the company a global vendor for HP. Recently, in April 2006, Mindteck acquired Texas-based ISS (International Systems and Software) which provides outsourced software services in SAP implementation and support, as well as software development services for embedded systems. The acquisition of ISS was made by Mindteck India’s wholly-owned subsidiary, Mindteck USA Inc, in an all-cash deal. ISS does on-site SAP support for Halliburton and Intel, which helped to strengthen its business in the US. The service offerings of ISS reinforce that of Mindteck while extending Mindteck’s market reach and expanding its customer base. However, ISS continues to operate as a subsidiary of Mindteck USA, and the executive management of ISS will continue in their current roles.

Growth through acquisitions

The company has realised the importance of inorganic growth. In terms of services, Mindteck India will continue to focus on its core competence in embedded technology, a niche sector characterised by high growth and margins. The company has planned its future course of action, which includes acquisition, tapping new clients, and concentrating on embedded technology. In the embedded space, the company has been strong competing against bigwigs such as Wipro and HCL. Traction is also there in SAP support. In consulting, Mindteck has moved from an offshore to an onshore model. Newer opportunities are expected to come in business intelligence. About 50 percent of its revenue accrues from embedded technology, which is expected to grow in the near term. In IT consulting Mindteck aims to acquire more offshore work than onsite projects because profitability is higher in the offshore business. SAP support, which is still in its infancy, is expected to generate returns by next year. The US contributes about 70 percent of revenue followed by Singapore, Middle East, Europe and India.

Test and measurement companies for the embedded space, and anchor client base in IT consulting continue to be on Mindteck’s radar. In the future it plans to target oil and gas firms, especially in the Middle East. In the next three years, till 2009, Mindteck is aiming for revenues of $250 million to $300 million through a combination of organic and inorganic growth. “To grow the company to a reasonable size, acquisitions—rather than organic growth—would be helpful. Since our expertise lies in integrating and configuring acquisitions, buying out the relevant companies in the range of $20 million to $30 million makes business sense for us. We are bullish about the IT market and are expecting to make more acquisitions,” adds Ananthanarayanan. Mindteck has three development centres—in Bangalore, Kolkata and Singapore—and the rest of the operations are spread across Malaysia, Britain, Bahrain and the US. The company currently has 600 employees across all its operations, and another 200 will be added in the next three months.