• NOVEMBER 19, 1999

Satyam's will look hard at acquisitions before leaping

Satyam Computers will adopt a 'guarded and cautious' approach in making strategic investments in overseas firms. 376, 209, 304, 7685

Since its inception in 1987, Satyam Computers (Satyam) has focussed on software development and infotech (IT) services on mainframes (legacy system). Close to 60% of revenues come from mainframe-related jobs. It has taken a strategic decision to focus on e-commerce and web-enabling tools.

The chairman's statement that it will not rush into making acquisitions seems to highlight the fact that Satyam will employ the acquisition route only if the benefits are evident and not vague. It will invest in companies promoted by venture capital firms to help them translate ideas into products. The company will adopt the outright acquisition route only if there are definite synergies with the target business.

The company will offset the decline in Y2K revenues by undertaking more e-commerce and web-enabled businesses. Satyam will list its stock on NASDAQ next year.

Satyam's look-before-you-leap strategy makes a lot of sense. There are a lot of software startups the world over, and it would be unwise for the company to acquire companies for the sake of acquisitions. That is why the company has decided to target acquisitions on certain criteria, and not indiscriminately.

A lot of Indian software majors have adopted the acquisition route for growth. This could put some pressure on their peers to acquire companies so as not to be left behind. Therefore, it is critical that software companies outline the objectives and criteria before they go in for the kill, else they will be saddled with companies with little synergies with their core business.

Market view:
Satyam's successful foray into products (Vision Compass), combined with the strong performance of its ISP arm (Satyam Infoway) and spurt in onsite revenues have prompted analysts to flag the stock as a 'BUY'.

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