Monday, 28 September 2009

ACS tries an Indian take-away

(By Anthony Miller – Monday 28th September 2009 8:00am). Vin Murria continues to dig into Advanced Computer Software’s cash pile (see ACS raises £44m for acquisition spree), this time adding dash of spice by acquiring ACS’ Bangalore-based development partner, Oak Labs.

From what I can see, Oak Labs is a small ‘Build-Operate-Transfer’ outfit specialising in supporting mid-sized European software and IT services players on their first offshore excursion. They have 22 FTEs and were generating a 5-6% EBITDA margin on around £500K revenues, which puts revenue per FTE broadly in line with what I would expect for a small India-based pure-play, but with somewhat undernourished margins. No mention of deal value, other than a combination of cash and shares, the latter valued around £260k.

Murria intends for Oak Labs to continue serving its other – quite diverse – client base, and indeed wants to broaden it. I can only assume ACS alone does not have enough work to keep Oak Labs profitable, in which case, fine for now. But surely there will come a point where resourcing conflicts will arise between Oak Labs’ third-party work and ACS work. In any event, running an Indian ‘BOT’ shop under the covers of a healthcare software play may confuse investors, who tend to prefer simple business models. I’m sure Murria realises this and that it all fits into the ‘grand plan’. This point aside, most of you already know my views on the necessity for software companies, as well as services firms, to take full advantage of low-cost R&D and delivery, so nothing much more to be said other than ‘right on’.

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