NEW DELHI: The deal is pending the formal approval of the two boards. Though exact details of the merger are being thrashed out by the top brass of the two companies, it is expected that chairman Malhotra and other co-promoters of Techspan would receive shares in the merged entity, along with a cash payout estimated to be around $34-35 million. While Malhotra might join the top management of Headstrong after the merger, he might also relocate to India from Sunnyvale in Silicon Valley, where he is currently based, looking after Techspan’s US marketing arm’s operations. Techspan was started five years ago by Malhotra, who was the co-promoter and vice-chairman of HCL Infosystems, and still has a substantial shareholding in the latter. Having started Techspan at the peak of tech boom, Malhotra has stayed with his venture so far. His venture was primarily bankrolled by Goldman Sachs (with an initial funding of $7 million) and Walden International ($2 million), with Malhotra and other co-promoters putting in another $3 million between them. The daily quoting sources reported that an understanding was reached between Techspan and Headstrong over three months ago, but a formal deal could not be signed due to legal wrangles. The deal was being managed by Merill Lynch before it developed a snag as Headstrong’s Indian joint venture partner claimed that such a merger will violate the JV agreement. Headstrong, formally known as James Martin & Co., already has a presence in India through JV partner Satish Jha. He has procured an injunction against Headstrong’s decision to acquire Techspan without keeping him in the picture. The case is, however, still pending in the Delhi High Court and listed for next hearing in October end. Headstrong refused to comment on the matter. A detailed questionnaire mailed to its public relations department failed to evoke a response. Following this development, Techspan has also revived its efforts to scout for another buyer, or persuade its leading venture capitalist Goldman Sachs to infuse more funds and increase stake in the company. No final decision, however, has been reached on the matter. Techspan too refused to answer queries when asked for confirmation of the merger talks with Headstrong. A questionnaire mailed to Malhotra in the US, company’s PR department and other top brass went unanswered. Without responding to queries, the company instead issued a carefully-worded statement attributed to its managing partner Sandeep Sahai. “In anticipation of our continued growth, we have been in discussions with our current investors and outside firms regarding potential opportunities. Arjun Malhotra and the management team are committed to growing the firm over the next few years and making it a leader in domain knowledge-led IT consulting,” the statement read. “Techspan’s business model of domain-led IT consulting has been more than validated over the last three quarters. Our revenues have grown an average of 16 per cent quarter to quarter, with a substantial portion of this growth coming from offshore consulting in the investment banking and aviation industries,” added Sahai’s statement. The company, which reported revenues of about $35 million last year, has built a standing for itself in the past five years through web applications and high-end IT consulting for clients. But clearly, the IT downturn has finally caught up with it. Over the next 12 months, Techspan which has over 450 employees spread across four centres in Noida, Bangalore, Fairfax (Virginia) and Sunnyvale, plans to set up its fifth centre in Delhi and grow the team to 1,000 people. These centres undertake the software development work for its predominantly American clientele. For Headstrong, the deal will be a strategic fit. The 550-member company has been experiencing heavy pricing pressure and lessening demand for its services in the US. In 2001, a clutch of venture capitalists pumped in $200 million in the reincarnated version of James Martin & Co in order to create a large IT service provider firm. Yet, the company’s revenue fell 25 per cent and it clocked $91 million in 2002, as against $121 million in 2001. According to media reports, the company is keen to take 50-60 per cent of its business application work offshore in the next 12 to 18 months. The move will require a larger offshore presence and application development capability, particularly in financial services domain. At present, Headstrong has negligible presence in India and its chief executive officer Kevin Doherty is quite keen to have a major presence in the country. It may also be recalled that Headstrong (in its earlier avatar as James Martin & Co) had shared a good relationship with HCL and Arjun Malhotra in form of a joint venture in the nineties. In case the merger goes through, Headstrong may be forced to retain Techspan’s name and identity post-merger, as against its initial plan to brand operations under its own umbrella. It is also unclear if Goldman Sachs and other VCs would also have a minor stake in the merged entity, provided the merger comes through. (Courtesy: Economic Times)