Acquiring Minds Want To Know

One local company is gobbling up smaller companies around the world. And it's hungry for more ... especially Atlanta small business.

Bobby L. Hickman

July 16, 2008

A t a time when many companies are cutting back on acquisitions and M&A financing is harder to obtain, one IT service and software product company is continuing an aggressive acquisition strategy, fueling its growth to a $100-million-a-year company in less than two years. 

Idhasoft provides software products and IT services to customers in the United States, Europe and Asia. It’s the fastest growing private company in India – where it has a second headquarters – and serves banking and financial services, insurance, government, retail, health care and telecommunications industries. Services include software development, strategic consulting and implementing third-party enterprise software and clients include giants such as Sears Holdings, Petsmart, Safeway and Timberland.

Alok Pathak, CEO and executive director, co-founded Idhasoft 18 months ago. Beginning with four companies, he and his partners aggressively acquired 19 more in the United States, plus one in Singapore. Idhasoft has more than 500 employees and revenues exceeding $100 million during the most recent fiscal year and seeks organic growth of 30 percent annually, with the remaining revenues added via acquisition. The U.S. companies include eight each in Atlanta and California, plus one each in Colorado, Illinois and New Jersey. Idhasoft continues to look at other acquisitions in Georgia, across the U.S. and in other countries.

Pathak says in the early stages of growth, his company typically targeted smaller organizations with annual sales between $2 million to $5 million. Today’s targets typically fall in the range of $5 million to $100 million in revenues. “We’re looking for complementary acquisitions where we don’t currently have a company” that provides certain services, he says, adding, “Later on, we’ll want to add someone who specializes in J.D. Edwards software services.”

Pathak says Idhasoft plans to reach gross revenues of $250 million by the end of next year. Within three years, the company should have $1 billion in revenues and would consider an initial public offering at that time. “You don’t want to do an IPO too soon,” he says. “You want to be large enough, and you want to be able to show investors a track record of growth.”

Idhasoft is supporting this growth through “a good mix of debt and equity financing,” he says. In addition to the company’s startup investments, Idhasoft has “a large pool of high-wealth individuals who are investors.” The company also is backed by HDFC, a private equity firm based in India. “We’re also in talks with two other major PE firms,” he says. The company also has access to up to $200 million in long-term debt, and is considering increasing the debt to between $300 million and $400 million.

Culture Clashing?

Many companies that make numerous acquisitions over a short period of time run into problems assimilating the various corporate cultures. However, Pathak says Idhasoft’s strategy for implementing acquisitions avoids those potential pitfalls. “We don’t really have problems merging the cultures; it has not been an issue,” he says.

For two to three months before the merger is complete, “we work together to make sure it’s a good fit for both sides,” Pathak says. “Normally our deals are part cash and part stock, so everyone has a common agenda.” Typically the existing management staff stays on when a small owner sells a company to Idhasoft. “We make sure we know a lot about the company and they know a lot about our culture in advance. So we make sure we can work together, or the deal doesn’t get done,” he adds.

Once an acquired company joins the group, Pathak says, Idhasoft leaders stay involved in making sure they continue expanding their business. “We set high goals for our acquisitions. If you leave them alone, they often aren’t going to grow on their own. So we push them to expand.”

Target: Atlanta

One of Idhasoft’s most recent cash-and-stock acquisitions was Intelligium, also based in Atlanta. Intelligium provides infrastructure management services to Fortune 1000 companies using IBM enterprise products. When the deal was announced in early May, Pathak says, “We had been looking for a strong IBM partner in the Tivoli and Websphere space, and Intelligium’s acquisition is our first step in that direction.”

Naushad Ahmed, Intelligium’s president and CEO, who now is an executive vice president with Idhasoft, says his company was doing well after five years on its own, receiving a number of awards and growing. “We were not looking to sell,” he says. “We were looking for private equity funding to expand.”

However, after being approached by Idhasoft and meeting with its leaders, Ahmed and his team decided to join. He gave several reasons for his decision, including his favorable impression of Pathak and Idhasoft’s entrepreneurial culture. Another is Idhasoft’s existing client base, which was “ about 20 times than ours.” He notes it’s easier to get access to the major corporations that Intelligium targets as part of the larger Idhasoft.

Ahmed, who continues to lead Intelligium, agreed the company has had no issues integrating easily into the Idhasoft culture, nor has he seen any problems with the other companies acquired since Intelligium. He says the Idhasoft culture is team-oriented, and that turnover among the acquired firms is “almost zero percent.” He also noted the integration of back office operations was “quick and efficient.”

Much of Ahmed’s time now is devoted to supporting Idhasoft’s M&A strategy. He is part of a three-person team working on potential deals, including some with Georgia firms. “We have 15 to 20 companies in the pipeline at any given time,” he says, “and as we build credibility, more companies are starting to approach us.” The M&A process also is clearly efficient, with deals typically closing within 60 days of the initial conversations. “Over the next few months,” he says, “you’re going to see us making a large impact in Atlanta and in Georgia.”

Bobby Hickman is a contributing business writer for Catalystmag.com and Business to Business magazine.

Photo Credit: © Kts | Dreamstime.com

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