AppLabs looks at buyout in US for around $50 mn

AppLabs, the world’s largest independent software testing quality management company, which has its global delivery centre in Hyderabad, is planning to acquire a US-based company for about $50 million (approximately Rs 235 crore), according to its founder and chairman Sashi Reddi.

“The move is primarily targeted at acquiring talent pool in a short while, going back to the old challenges. One significant acquisition in the US can help us plug a key requirement (workforce) for the company,” he told Business Standard, while declining to draw any time line for closing the deal.

AppLabs had earlier acquired three companies — KeyLabs for $7 million in 2005, IS Integration for $37 million in 2006 and Hyderabad-based ValueMinds for an undisclosed sum in August 2010.

The over $100-million company, has raised $17 million from global venture capital funds such as Sequoia Capital and Silicon Valley Bank to fund these buyouts. “The proposed acquisition will be funded through internal accruals and debt from banks and large private equity players,” Reddi said.

AppLabs presently employs a little over 2,000 globally, of which 1,650 work out of its Hyderabad centre. Reddi said the debt-free company was expanding its presence in Hyderabad and was taking more space at the DLF special economic zone here at a cost of Rs 12 crore.

“I can picture that we can add probably more than 1,000 people in the next 12 months,” he said, adding the new facility would be fully operational by the end of this December.

Reddi said there was a change in the mix of people that the company was taking because of the bigger companies that it was currently working with. The new recruitment at AppLabs, will include 60 per cent freshers and the rest laterals.

Stating that the global software testing market was estimated to be $6 billion and growing at a rate of 20 per cent, which is far higher than the growth of the general IT services market, he said the growth could be achieved if the testing moves from inhouse to outside.

“But where is it going is the question .. whether it is going to big systems integrators, specialised firms like AppLabs or testing tools vendors. In this space, we are seeing a strong growth in the US, with the geography contributing two-thirds to our revenues,” he said, adding that when the company competed now for business, it was always against Tier-I players IBM or Cognizant.