Leading Edge Systems Ltd has decided to hive off its products into separate companies.
Leading Edge is a software solutions company that was recently in the news for acquiring eCapital solutions by means of a stockswap to the tune of Rs 9,500 m (which was one of the largest acquisitions ever made in the Indian software business) and California based Applisoft for a sum of Rs 375 m.
The company proposes to immediately hive off its two products i.e. e-vector, a telecom software that enables mobile use and customer relationship management products (CRM) into separate companies.
What is significant about creating these revolutionary models is that the funds required for marketing of each of these products will be derived by selling stake in equity of the newly hived off product company to strategic investors. This shall make the product independent of the parent company. The other benefit is that investors have become increasingly discerning as to product lines while investing in software companies. This will ensure maximum investments by investors who are upbeat only on one product and would like to avoid investment in a basket of products.
While marketing costs, which are more directly attributable to the product, shall be derived from the product itself, research and development costs shall continue to be derived from the parent company.
The other advantage is that each of these companies shall be independent profit and responsibility centres ensuring better accountability.
It is quite likely that more and more software companies would develop such business models for growth especially in view of the considerable increase in the range of products offered by them and divergence in the same.
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