Megasoft lines up $40 m acquisition

Megasoft, after its recent all-stock amalgamation with VisualSoft Technologies, is gearing up for $30-40 million acquisition in the US or Europe.

The company announced on September 30 that its board had accorded an in-principle approval to merge VisualSoft Technologies with itself. GV Kumar, managing director and CEO, Megasoft, said asset base of VisualSoft would be used to further the inorganic growth of the company. VisualSoft has cash reserves of Rs 35 crore with a debt-free facility in Hyderabad.

Besides, Megasoft has also lined up $20 million acquisition in the US in the telecom space. The merged entity will cease to exist from December 2007 with revenues worth Rs 550 crore and Rs 90 crore net profit.

VisualSoft will not add to the bottom line of the merged entity for the next few quarters. The company's revenues and net profit have been on the decline. For the quarter ended June 30, 2006, it registered a net profit of Rs 25.84 lakh compared with Rs 5.98 crore in the corresponding quarter of the previous year.

Post-merger, Kumar will head the operations of the company with Srini Raju, co-founder of iLabs, as the largest shareholder with 24 per cent stake.

By end of this year, the merged entity combined turnover is expected to be at Rs 270 crore. While Megasoft's contribution is likely to be Rs 165-170 crore, VisualSoft's share will be Rs 100 crore. "With the acquisitions, we expect the entity's top line and bottom line to reach Rs 550 crore and Rs 80-90 crore next year," Kumar added.

Megasoft and VisualSoft employ 550 and 750 people, respectively. A year from now, the entity's employ strength is expected to touch the 2,000-mark. Megasoft expects the amalgamation with VisualSoft to complete in six months. Assuming the market prices, the valuation is expected to be around Rs 172 crore and every eight shares of VisualSoft will be replaced with five shares of Megasoft.