This month, we're pleased to present a conversation with Bhaskar Panigrahi, chairman and CEO of Cambridge Technology Enterprises (CTE), in Cambridge, Mass. CTE is a global technology services and outsourcing company serving the midsize market of enterprises and the midsize units of Global 2000 companies.
How did you get started, and what's the background of CTE?
I'm a computer science graduate, with a BS from the National Institute of Technology in India. Early in my career, I was a technologist at IBM, State Street Bank and TELCO. In 1999, I co-founded e-Solutions Integrator, an e-business consulting firm, which merged with Unique Computing Solutions, where I served as CEO. From there, I served as CEO of CellExchange, an enterprise systems developer. While at CellExchange, we created Cambridge Technology Enterprises, which we spun off in 2005 as a separate business unit with its own identity. Recently, we completed a successful IPO of CTE on both the Bombay and National Stock Exchanges in India.
Why is CTE unique?
When we build companies, we look at three things: a good technology trend, a good industry trend and a good arbitrage trend. The technology trend we saw was SOA (service-oriented architecture), which we felt was the wave of the future. The industry trend is our assessment that in five years there will only be five software companies—IBM, SAP, Microsoft, Oracle and Open Source. The rest will either become insignificant, or, if they are significant, they'll be bought. Then there is globalization and how you do off-shore, on-shore, and near-shore implementations in places like China, Vietnam, India, and Europe.
We also saw that there were two types of customers. One is the Global 2000 companies with centralized IT. The other is the midsized companies—either stand-alone business units of the Global 2000 companies or stand alone companies. We determined that we wouldn't have a good chance going after the Global 2000 companies because these would be well-served by the big players. We decided instead to focus on serving the midsize market—companies that would be challenged in integrating the trends of SOA, vendor consolidation and globalization. We believe we're one of the few, probably the only, company that knows how to integrate these trends for the midsize market.
How do you see 2008 unfolding? What are the top issues for the year?
I don't see any difference between 2007 and 2008. Despite what we hear of the "R" word, I don't see how it's going to impact IT in a big way. Technology companies are not showing any signs of slowing down. The three big issues I foresee are: first, the weak dollar; second, the maturity of SOA is not happening as fast as everybody would have expected; and third is the continued lack of alignment between business and IT, though it's slowly getting better.
You are an advocate of M&A as a growth strategy. Why?
Over the years, I've done more than 10 mergers/acquisitions/strategic investments, including three at CTE last year with two more planned this year. The positive impact of M&A is obviously growth. We were a $5MM company a year ago, and now we're a $20MM company. We believe that as vendor consolidation happens, then services provider consolidation also happens. So, as technology vendors grow fast and big, we also want to grow fast and big.
What does the M&A market look like over the next few years?
I think M&A activity will continue to be robust over the next few years. Because of the stock market turbulence and equity market downturn, I think what you’ll see are more pure-cash deals, versus pure-equity, or cash-plus-equity deals.
What is it that you look for in companies you buy?
Very simply, I look at three things: the quality of management, distinctive capabilities that we don't have and enterprise valuation.
What have you learned about M&A along the way?
My first merger failed. I paid a hefty price, and I thought I could turn it around. Since then, we learned a lot, and the last six to seven mergers have been very successful. What I've leaned is to be upfront with the candidate management. Understand from everybody what they expect post merger, and get the buy-in before the transaction is done. That's the one single most important lesson I've learned. Another is to get my management buy-in because if my guys don't believe in the capabilities of the target company, then things won't go well at all. Also, most people try to measure success in the first 90 days, when most things look good. True success is measured over 18 months.
Why do acquisitions fail?
I think there are three primary reasons. First is what I call the "deal heat". The desperation to get a deal done often leads to bad deals. Second is overestimating the potential of the acquisition. Third is not doing the integration planning work upfront. This is often left until the deal is closed, but by then you're already in trouble.
Click HERE to visit the CTE Website.
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