Ikya Human Capital Solutions, which has presence across human resources services, facilities management services, food & hospitality and skill development services, is now looking to branch into information technology services through an acquisition. The company is in talks with at least two US-based IT services companies and will look to buyout a company with revenues of around $50 million (around Rs 305.7 crore) by March 2015.
The company is eyeing IT services companies that are involved in activities like application development and maintenance services (ADMS) and infrastructure management servicesn (IMS). The acquisition target would be a specialist in a niche space, Ajit Isaac, chairman, Ikya Human Capital Solutions told Business Standard.
"We already have some presence in the software services space through our subsidiary Magna Infotech, which provides professional staffing. Now we would want to be invested in the IT industry in a software services company, independently at a group level," Isaac said. "We have talked to a couple of potential sellers in this area and there is a potential opportunity that we are chasing. We are looking at couple of assets, I think we have covered some ground."
He added, that the move is mainly aimed at entering a higher margin business.
Ikya is targeting margins of 8% and revenues of Rs 5,000 crore by 2017. The company is hopeful of closing the current financial year ending March 2014 with an operating profit of Rs 70 crore, revenue of Rs 1,500 crore and margins of around 5%. In FY13, Ikya had revenues of Rs 1,000 crore with a operating profit of Rs 47 crore.
"There are lot of companies in the US which have revenues of around $50 million, which are doing a combination of ADMS, professional staffing and some IMS work, and don't have an offshoring-end in India. If these companies develop an offshoring support in India through an investment, money is automatically made through the arbitrage of cost that you get," Isaac said.
Even as he refused to share details of the companies that are being looked at currently, he said, the acquisition target could be owned by funds, individuals or even be a subsidiary of an American company. Isaac refused to share details of the company's current cash in hand.
Ikya has made seven acquisitions in the last five years, including that of Magna Infotech, which offers staffing solutions, including professional staffing, where in the company deploys IT personnel to address specific IT requirements of clients.
While having an IT services company in the group might clash with the operations of the professional staffing business, Isaac said, "we have separate investments in separate companies. They are all separate subsidiary companies. Magna will supply people on a professional staffing basis to IT companies, and we will have a separate IT company that is a small company and would not compete with any of our clients."
Ikya is looking to fund this acquisition through internal funds, as the company is "fairly averse to debt", Isaac said. "We are very cash flow-focused so I think we will only do acquisitions that are sized to our cash."
Additionally, he said, the top criterions for the acquisition would include a healthy cash flow and a strong management team.
Ikya is majority owned by Fairfax Financial Holdings, Canada through its subsidiary Thomas Cook India. The company has a consolidated employee strength of around 70,000 people across its businesses and has around 33 offices in India across 22 cities. The company has over 850 corporate clients.
