Cybertech systems and Software’s (CSSL) planned reverse merger with its parent the $75 m Cybertech System of the USA (CSI) has run into an objection from two venture capital funds who are investors in the parent.
CSSL is a Mumbai based software arm, which trains software engineers for various competencies such as Oracle, Cisco and on the SAP platform for ERP. The engineers are then sent to work for CSI based in the USA.
In the past the negative perception of transfer pricing i.e. the revenue that the India based company derived from its US parent (which owns 51% of CSSL) had bogged down the market capitalisation of the domestic company.
With the impending reverse merger and a probable listing on the Nasdaq, the market capitalisation had almost doubled over the past quarter. With a delay in the reverse merger it is quite possible that the valuations could come off.
One option that the parent company is toying with, is the hiving off the networking business ($ 8 m ) of CSI which could then be listed for giving the venture funds an exit option. However, the networking business caters to Cisco, which is one of the most reputed of CSI’s clients and it was this business that provided it the cushion when the ERP business softened last year.
There would definitely be a negative effect on valuations of the merged entity (as and when the merger were to come through) if the networking business were to hived off.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407