Sashi Reddi, 40, is founder and CEO of AppLabs Technologies, an IT services company specialising in testing, development and certification solutions. Dr Reddi started AppLabs in April 2001. A graduate in computer science from IIT-New Delhi, Dr Reddi completed a masters in computer science from New York University and earned a doctorate in finance and marketing from the Wharton School of the University of Pennsylvania in 1993. He subsequently launched two technology companies in the US, one of which, was acquired by a larger company.
AppLabs, a privately-held firm, has been in the news since October after it announced that it would be amalgamating with VisualSoft Technologies Ltd., a software company listed on the Indian stock markets (the VisualSoft stock closed at Rs 206.45 on the NSE on Friday, up 2.66 per cent from previous close). Under the swap ratio, 17 equity shares of Rs 10 each of VisualSoft would be given to the equity shareholders of AppLabs Technologies for every six shares held by them in AppLabs.
Excerpts from an interview with SHAUKAT H. MOHAMMED:What’s a bean counter like you doing running a technology company, or rather, being a serial entrepreneur who sets up companies and sells them to start another?Firstly, I have problems being referred to as a serial entrepreneur. It has negative connotations, like, for instance, serial killer or something. I set up two companies in the US, one of which we sold for a profit. The other was a dotcom. Anyway, I was offered a job as a futures and options trader in London with Barclays after I finished my PhD, but around the same time a couple of friends were launching a technology company and they asked me to join. We did not have an idea about what we were going to do, but I joined anyway, and so began a career as an entrepreneur in the technology space.
What made you choose the testing space in technology. Is there money to be made, or, more importantly, is AppLabs Technologies, making money?
It is a profitable space to be in, the margins are very good. The billing rate is about $3,000 per month per engineer in the US. We have 850 employees in Hyderabad and 75 employees in Philadelphia, US. The wage bill in the US is obviously high, but then we have a highly skilled sales and marketing team. And testing services depend to a large extent on the marketing skills of our team. We aim for AppLabs to be the number one software testing firm in the world, and we expect to be getting there soon.
Talking about your proposal to merge with VisualSoft, that appears to have run into some rough weather, with shareholders complaining that the stock swap ration is in AppLabs favour. What’s happening to the merger plan? Individual shareholders of VisualSoft have indeed complained to Sebi about the valuation. VisualSoft is addressing the concerns of each shareholders who has lodged a complaint, and is responding to Sebi’s queries.
But it has been nearly six months since the merger plan was announced. When do you expect the merger to be completed? That depends on the Sebi and the stock exchanges. They have to approve the merger plan. They have become extremely pro-active, which is good for investors, and are going through each merger application with a fine toothcomb, and are insisting that each shareholder complaint be addressed.
Do you have doubts about the merger going through? As I said, that depends on the Sebi and the exchanges. We were hoping for all approvals, including that of the Sebi, within 60 days from the date of announcement of the merger with VisualSoft. We are hoping that the approvals come through quickly.
Where’s the synergy between a software testing firm like AppLabs and a software services and products developer like VisualSoft Technologies? AppLabs’ strategy is to grow through acquisitions. By merging with VisualSoft Technologies, AppLabs will be in a strong position to offer a bouquet of services to clients. While AppLabs will be focusing on testing services, VisualSoft’s software product development services and technical support will make our service offerings more comprehensive. AppLabs and VisualSoft can cross-sell our respective services. Post-merger, we expect VisualSoft Technologies to post revenues of Rs 400 crore in 2006-07, with software testing generating Rs 220 crore and product development Rs 180 crore.
Have you considered the possibility that the merger may not happen? Have you planned for such a situation? We want the merger to be completed. We have lost significant time and opportunity because of the delay in regulatory approvals. More delay could be bad for both AppLabs and VisualSoft, because together we could have emerged as a top testing and software product development company.
What do you intend to do if the merger does not happen? At AppLabs we are continuing to meet with clients and signing up new business. We are in the process of acquiring a software testing company overseas. We are negotiating with a testing company each in the US and the United Kingdom. We expect to complete the acquisition in the next 3-4 months. The acquisition will make us the biggest software testing firm in the world. Software testing will continue to be our key growth area in the future.
How will AppLabs fund the acquisition? The plan was for VisualSoft to raise a FCCB loan of Rs 90 crore for the the acquisition. We can raise the funding from venture capitalists, who are looking for an early entry into a testing firm. Our primary investor, WestBridge Capital Partners, has indicated that it is also willing to participate in the funding.
AppLabs, a privately-held firm, has been in the news since October after it announced that it would be amalgamating with VisualSoft Technologies Ltd., a software company listed on the Indian stock markets (the VisualSoft stock closed at Rs 206.45 on the NSE on Friday, up 2.66 per cent from previous close). Under the swap ratio, 17 equity shares of Rs 10 each of VisualSoft would be given to the equity shareholders of AppLabs Technologies for every six shares held by them in AppLabs.
Excerpts from an interview with SHAUKAT H. MOHAMMED:What’s a bean counter like you doing running a technology company, or rather, being a serial entrepreneur who sets up companies and sells them to start another?Firstly, I have problems being referred to as a serial entrepreneur. It has negative connotations, like, for instance, serial killer or something. I set up two companies in the US, one of which we sold for a profit. The other was a dotcom. Anyway, I was offered a job as a futures and options trader in London with Barclays after I finished my PhD, but around the same time a couple of friends were launching a technology company and they asked me to join. We did not have an idea about what we were going to do, but I joined anyway, and so began a career as an entrepreneur in the technology space.
What made you choose the testing space in technology. Is there money to be made, or, more importantly, is AppLabs Technologies, making money?
It is a profitable space to be in, the margins are very good. The billing rate is about $3,000 per month per engineer in the US. We have 850 employees in Hyderabad and 75 employees in Philadelphia, US. The wage bill in the US is obviously high, but then we have a highly skilled sales and marketing team. And testing services depend to a large extent on the marketing skills of our team. We aim for AppLabs to be the number one software testing firm in the world, and we expect to be getting there soon.
Talking about your proposal to merge with VisualSoft, that appears to have run into some rough weather, with shareholders complaining that the stock swap ration is in AppLabs favour. What’s happening to the merger plan? Individual shareholders of VisualSoft have indeed complained to Sebi about the valuation. VisualSoft is addressing the concerns of each shareholders who has lodged a complaint, and is responding to Sebi’s queries.
But it has been nearly six months since the merger plan was announced. When do you expect the merger to be completed? That depends on the Sebi and the stock exchanges. They have to approve the merger plan. They have become extremely pro-active, which is good for investors, and are going through each merger application with a fine toothcomb, and are insisting that each shareholder complaint be addressed.
Do you have doubts about the merger going through? As I said, that depends on the Sebi and the exchanges. We were hoping for all approvals, including that of the Sebi, within 60 days from the date of announcement of the merger with VisualSoft. We are hoping that the approvals come through quickly.
Where’s the synergy between a software testing firm like AppLabs and a software services and products developer like VisualSoft Technologies? AppLabs’ strategy is to grow through acquisitions. By merging with VisualSoft Technologies, AppLabs will be in a strong position to offer a bouquet of services to clients. While AppLabs will be focusing on testing services, VisualSoft’s software product development services and technical support will make our service offerings more comprehensive. AppLabs and VisualSoft can cross-sell our respective services. Post-merger, we expect VisualSoft Technologies to post revenues of Rs 400 crore in 2006-07, with software testing generating Rs 220 crore and product development Rs 180 crore.
Have you considered the possibility that the merger may not happen? Have you planned for such a situation? We want the merger to be completed. We have lost significant time and opportunity because of the delay in regulatory approvals. More delay could be bad for both AppLabs and VisualSoft, because together we could have emerged as a top testing and software product development company.
What do you intend to do if the merger does not happen? At AppLabs we are continuing to meet with clients and signing up new business. We are in the process of acquiring a software testing company overseas. We are negotiating with a testing company each in the US and the United Kingdom. We expect to complete the acquisition in the next 3-4 months. The acquisition will make us the biggest software testing firm in the world. Software testing will continue to be our key growth area in the future.
How will AppLabs fund the acquisition? The plan was for VisualSoft to raise a FCCB loan of Rs 90 crore for the the acquisition. We can raise the funding from venture capitalists, who are looking for an early entry into a testing firm. Our primary investor, WestBridge Capital Partners, has indicated that it is also willing to participate in the funding.