iGate for global regrouping exercise
PITTSBURGH: These two SBUs will approach clients as part of one large entity: iGate Corporation, which will position the company to take advantage of its collective size and better compete against large firms.
"This new structure will enable us to better leverage our global resources to build our offshore business, which will continue to be a strong area of growth, even as the rest of the IT services market continues to be weak. We will offer our clients iGate's complete range of IT services under one identity, enabling the company to further strengthen its client relationships and to benefit from unified branding efforts," said Sunil Wadhwani, iGate's chief executive officer and co-founder.
iGate Solutions, the core entity in this SBU will be Mascot (iGate's India-based subsidiary which provides offshore IT outsourcing services), which will acquire eJiva and Aqua Regia (a Hyderabad-based offshore company which has had an exclusive relationship with eJiva). The iGate Solutions SBU will also include Red Brigade and Symphoni.
"Mascot and eJiva's service offerings will include a wide range of mainstream and specialized offshore services, which will further differentiate them from the competition. eJiva brings strong expertise in areas such as Enterprise Applications services, Data Integration and Business Intelligence while Mascot brings its Embedded Systems capability. We believe the strength and diversity of their combined service offerings will be a unique differentiator," said Ashok Trivedi, iGate's President and Co-Founder.
eJiva also brings three significant client relationships with Fortune 10 companies and several other Fortune 500 client relationships. Together, they will share over 145 clients, have a more diversified portfolio of top 10 customers and have over 1,750 technical employees, including more than 900 in India at their offshore centers in Bangalore, Chenai and Hyderabad. Had the combination been effective July 1, 2002, their combined revenues would have been approximately $28 million for the quarter ended September 30, 2002, which is 48% greater than Mascot's third quarter revenues.
As part of this restructuring, Mascot will be headed jointly by Gerhard Watzinger, Mascot's current CEO and by Viv Penninti, eJiva's current CEO, who will both operate as Co-CEOs.
Commenting on the combination of Mascot and eJiva, Gerhard Watzinger said: "In a market where size has become an important factor to serve large clients and bid on large projects, Mascot will be well positioned to compete. Viv and I have successfully worked as a close team in the past, and I look forward to working with him again."
Commenting on his new role, Viv Penninti said: "The organization we are building through this strategic combination is going to benefit our clients at multiple levels. Our increased size, expanded service offerings and delivery capabilities represent a significant competitive advantage in this environment."
As a result of Indian legal and regulatory requirements, the purchase price for Mascot's acquisition of eJiva will be determined through an independent valuation. This valuation will be completed within approximately six weeks by a major investment banking firm, to be appointed by Mascot's independent Directors. Michael Zugay, iGate's Chief Financial Officer, commented, "A recent valuation of eJiva commissioned by iGate, indicated a value of approximately $15 million. We expect eJiva's solutions business to be lower than this value since eJiva's staffing business will be carved out before Mascot acquires it."
The iGate Professional Services business unit will provide clients staff augmentation and e-learning services, as well as generate new opportunities for iGate's offshore business. The iGate Professional Services SBU will include: Mastech Emplifi, Mastech Asia-Pacific and Scotland-based Direct Resources. Had the change been effective July 1, 2002, this SBU would have had revenues of approximately $37 million for the quarter ended September 30, 2002. Together, this SBU has about over 350 active clients, offices in 4 countries and over 1,400 technical professionals.
"While the iGate Professional Services SBU delivery will remain focused on staffing services, its ability to offer offshore services to its clients, through iGate Solutions, is expected to be a strategic differentiator and a strong internal sales channel for offshore services. We have experienced the success of this differentiator in the U.S. and Australia and this has enabled Mastech Emplifi and Mastech Asia-Pacific to approach new clients and maintain strong client relationships in a very competitive environment. With this new structure, we believe we can significantly expand on these past successes," said Steve Shangold, Head of iGate's North-American Professional Services group.
Finally, the company also announced it will consolidate its U.S. back office operations into one common support group, centralized into one Pittsburgh location. This consolidation will increase internal efficiencies.
"We anticipate the implementation of these laid-out changes to result in a fourth quarter one-time charge. The charge is expected to include a combination of severance costs, real estate and leasehold improvement write- offs as well as the potential for goodwill impairment charges related to the regrouping of its strategic business units. We will provide detailed financial information on this one-time charge and as well as other related financial information in a subsequent press release in approximately six weeks, upon completion of eJiva's valuation," said Sunil Wadhwani.
"We, at iGate, have long recognized the opportunity of the offshore market. We believe the steps we are now taking to further shift our resources toward offshore will add value to Mascot specifically and the entire iGate organization. We expect this strategy to benefit our shareholders through revenue growth driven by joint sales efforts and a broad range of differentiated service offerings; and through increased profitability as iGate's revenue mix further shifts toward offshore," added Sunil Wadhwani.
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