In Polaris sale, some national pride gets eroded
When US-based, Nasdaq-listed Virtusa Corp said last week that it would acquire a controlling 53% stake in Chennai-based Polaris Consulting & Services in a deal valued at around $350 million.Updated: Nov 10, 2015 17:04 IST
(Clarification: Polaris Consulting & Services, in response to this column, clarified that its intellectual property assets led by software products are still with an Indian company following the bifurcation of the company that led to the formation of Intellect Design Arena, a separately listed company, and the sale of majority stakes to US-based Virtusa is essentially of the services arm and its units. Following is a revised version of the column)
When US-based, Nasdaq-listed Virtusa Corp said last week that it would acquire a controlling 53% stake in Chennai-based Polaris Consulting & Services in a deal valued at around $350 million (R 2,300 crore), it brought back memories of how another fine Indian company, iflex solutions, was acquired in 2005 by Oracle in a $1.5 billion deal , when it acquired 61% for an estimated $909 million.
Both iflex and Polaris have common roots in a strong equity and business relationship with Citigroup, and both have built products and solutions when India’s software industry was largely focused on services. Strangely, both companies have lost their official Indian identity based on ownership. This in some ways is a loss of national pride, often linked to intellectual property.
However, Polaris hived off its intellectual property (products) into Intellect Design Arena, a separately listed company. Unlike iflex, it is not losing the product identity. But its original corporate name and a multinational footprint across 30 countries do become part of Virtusa.
Arun Jain, founder of Polaris, and Rajesh Hukku, who started iflex, are not household names in India. But their companies quietly became multinationals when most of India’s attention was on Tata Consultancy Services, Infosys and Wipro as the giants hired tens of thousands of engineers to scale up through outsourced services.
Kris Canakaratne, chairman and chief executive of Massachusetts-based Virtusa, told me over the phone at the weekend that he was grabbing Polaris not for the headcount (as can be commonly believed for US companies entering India), but because the two companies had complementary strengths in terms of focus areas within banking/financial services, geographical reach and solutions enabling them to jointly address a global market in which they take on giants including Accenture and Infosys.
“We have very little overlapping strengths,” Canakaratne said.
Virtusa was born only in 1996 and that too in Colombo, where the chairman has his roots. It was a bit late by old-world IT standards, and yet it has 120 clients from among the world’s top 500 enterprises. With 7,000 people coming in from Polaris, the enlarged Virtusa will have 18,000 employees, most of them in India
Virtusa says that about 25% of Polaris will continue to be listed on Indian stock exchanges, which means some of the Polaris identity may be intact for nationalistic Indians.
But the acquisition of both iflex and Polaris show that business is more important than pride in the ever-growing expanse of technology. These companies also show that quiet focus can produce a world-class company, away from the media noise.