Jerry Rao’s $ 7 million Mphasis valued at Rs 7320 million
The BFL–Mphasis deal has been valued at Rs 7,320 million. BFL Software would be issuing 6.5 million shares to the shareholders of Mphasis Corp.
BFL Software was earlier part of the Bangur group. Barings took a 52% stake in the company two year’s back, revamped the company and provided it with business contacts. The company boasts of a client list that included the likes of Compaq and Federal Express. Till last year 25% of the revenues of Rs 1 bn were accounted for by Y2K servicing. The company however could not make a successful transition and made a loss in the last quarter. This along with the departure of the company’s chief executive revealed the company to be in bad shape.
The deal values Mphasis’ shares at Rs 1127 per share. Mphasis is expected to report a loss in 2000 on the back of revenues of $ 7 million (Rs 280 million). In the coming year the company is expected to report a revenue of $ 20 million (Rs 880 million). The deal values Mphasis at over 25 times the current year revenues and around 8 times the next year’s revenues which is a very good valuation by any yardstick.
Perhaps, it is the management skills that Jerry Rao (the chairman of Mphasis) and is team are bringing to the table that has led to this fantastic valuation. It is quite possible that Barings the main equity holder, which holds 52% of BFL’s equity and is diluting its stake to 36% post merger believes that BFL needs a more proactive and entrepreneurial management that would market BFL to the USA market more aggressively. That could justify the current valuations that Mphasis is being bought at.
Most analysts have rated BFL Software as a buy primarily because of its lineage, its facilities and its clients. The market views BFL’s current problems as temporary and expects the company to do well in the FY2001.
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