Software services company, the FI Group, has signed a conditional agreement to purchase Indian offshore programming house, IIS Infotech, for #22 million.
Under the terms of the deal, FI Group hopes to purchase 76 per cent of IIS in cash and to float the remaining shares on the Indian stock exchange in order to buy them too. It also intends to purchase the UK contracting business for #200,000.
As a result, the company plans to raise #14.6 million in a rights issue, issuing one new ordinary share for every 12 held at the close of business on 26 November at a price of 640 pence per share. Other funding to make up the shortfall will come from existing resources.
IIS generated revenues of #8.7 million on pre-tax profits of #1.5 million to 31 March 1997.
Tricia Gardem, FI?s marketing director, said: ?We?ve been looking for an offshore centre for about two years because of the skills shortage in the UK, and to fuel growth we needed to hire staff. India seemed like a good place because they have good English and technology skills and it has an established IT industry. We hadn?t gone there to make an acquisition, but we respected the owners and it seemed to make sense for both of us.?
She added that all of IIS?s 663 staff and management would transfer to FI Group, and the company would be operated as a wholly owned subsidiary, but Rohit Chand, IIS?s chairman, had decided to stay on only for the transition period, after which time he would review his options.
FI has agreed to pay IIS?s executive directors up to #2.7 million over the next 18 months as performance related bonuses and so they do not become involved in competitive undertakings.
The acquisition will move FI into the US market for the first time, but while the firm hopes to expand the contracting side of the business there, it is still evaluating whether to expand its other UK-based services businesses into the region.
Richard Holway, managing director of Richard Holway, was generally positive about the acquisition, but was afraid it may be difficult for the company to digest.
?Our only fear is that FI has so far achieved its spectacular growth organically. The small acquisitions it has attempted have not always been so successful - but that didn?t matter too much as they were small in comparison to the whole. This one does matter, however,? he said.
Gardem replied that the services house had grown up a lot since making its last purchases in 1990 and 1991 and had in the meantime, acquired 100 staff per year via its outsourcing deals, so it was aware of the potential issues.
?But, we?ve looked carefully at the culture fit and we know our business well. The only difference is that IIS is hundreds of miles away and has different regulatory authorities. We recognise we?ve got a lot to think about, but we?ve done careful planning and evaluations,? she said.
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