Allied Digital: Remote control

To make an acquisition at the peak of the subprime crisis in the US would be considered foolhardy for most businesses. Unless, you are in one that could actually benefit during recessionary conditions. Allied Digital Services Ltd (ADSL) may be one such firm. An IT infrastructure-management service provider, ADSL manages company servers, IT security and such related activities which, in industry parlance, are classified as remote infrastructure management (RIM).

So, what does a company like ADSL do? It acquires an RIMcompany in the US, called En Pointe Global Services, outsources the work to India, and hopes to cash in on the cost arbitrage advantage. “The business opportunity in the US is huge despite the subprime crisis. For instance, a Cisco-certified inter-networking professional in the US is available for $150,000 a year whilst in India I can get one for Rs 15 lakh ($30,000),” says ADSL Chairman & Managing Director Nitin Shah. 

The Buyout Edge Acquisitions: En Pointe Global Services, US (2008) Price tag: $10 million and a 4.11 per cent stake in Allied Digital Financing: Proceeds from an IPO Benefits derived: Access to big customers like J P Morgan and American Airlines and offering other services to existing customers Integration achieved: Underway, with a part of the manpower to be shifted to India

A study by IT industry body NASSCOM last year said RIM business is the next big opportunity for India’s IT industry. The apex body highlighted that the total addressable market is estimated to be about $100 billion, and of this, India is well-positioned to capture $13-15 billion by 2013.

With En Pointe in the bag, ADSL gets direct access to marquee customers like JP Morgan, American Airlines and Mitsubishi. And, of course, it gets a readymade outpost in the US. “It would have taken us five years to get to the size of the business En Pointe has,” says Shah. The numbers indicate that ADSL is gaining from the acquisition, within just six months.

“Business has already increased to $50 million compared to $40 million at the time of acquisition,” says Shah. He adds that the operating profit margin will climb to 22-25 per cent (after full integration) from 10-12 per cent— that’s primarily due to the lowercost associated with offshoring activities, and the ability to provide additional services to the US clients.

— Virendra Verma