Friday, November 24, 2006

Hexaware acquires US-based Software Testing Company, FocusFrame in $34m Deal

From: Tech News

On Tuesday, Nov 07, Hexaware Technologies has acquired a US-based software testing company, FocusFrame, valuing it for $34.3m in an all-cash deal. Hexaware, , a Mumbai-based IT and BPO services provider, will make an upfront cash payment of $25m to the founders/owners of FocusFrame. The balance $9.3m will be paid out as earnouts over 24 months to FocusFrame founders and management team if they meet projected revenues and margin.

FocusFrame is a pure play software testing company with revenues of $24m. Hexaware seems to be paying cash equivalent to the revenues of the company, which makes it a relatively cheaper acquisition.

“The acquisition will help us strengthen our software testing service vertical,” Hexaware chairman Atul Nishar said. Hexaware has around 400 employees working in its software testing division, which is done manually. FocusFrame testing services are automated. The deal means a larger service offering capability — manual and automated — for Hexaware.

Hexaware has 15 clients on the testing side and earns 7.6% of its total revenues or around $12m from its testing business. “There has been no equity dilution and the deal amount is funded by the cash surplus generated by Hexaware,” said Mr Nishar. The deal will be completed in six weeks and profits from FocusFrame will start accruing from ’07.

FocusFrame has a delivery centre in Mexico, which Hexaware plans to convert into a global delivery centre (GDC) because of its proximity to the US market. The Mexico delivery centre employs 75 people, but Hexaware plans to add 200-300 people in the next 12 months.

“This is going to be our sixth GDC after Delhi, Mumbai, Chennai and Germany,” said Mr Nishar. FocusFrame has partnerships with Mercury Corporation and SAP. “That Hexaware will benefit from these partnerships as this will give them easy access to the SAP market also,” Mr Nishar said.

Post-acquisition, Hexaware is targeting revenues of $100m from software testing in three years. FocusFrame will become a subsidiary of Hexaware and will continue to function as a separate profit centre.

While the acquisition was done by Hexaware India, the company will be managed by Hexaware North America. FocusFrame’s founders — Suri Chawla and Vaughn Paladin — will continue to run the company from the US.

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