Shankar Varma was already a legend. The company he had started in a garage some 25 years ago, Bharat Datasystems Ltd (BDL), was the pioneer of India's computer hardware revolution. But the future was software, and here, service firms such as PCX, Powertech, Mercury, and TruSoft had stolen ahead of it.

Varma's original business had recently been split into two-and he was running the software unit, BDL Technologies. These were tough times, given the spend-cuts and client attrition caused by the tech slump.

Varma needed clarity on the future, and that's what this meeting was about. "First of all," he said to his strategic team, "I want everyone's opinion on how we could have mitigated the slowdown."

Voices spoke. Varma listened intently for an hour. Finally, Raj Singh, Vice President (Marketing), summed up the meeting with three concluding points. "One, we are over-dependent on a niche business serving the software needs of telecom equipment firms. Two, we need to improve relationships with corporates. And three, we must watch for signs of value migration."

Value migration. That was the phrase that had become central to Varma's future analysis chart. He had already seen value migrate from hardware manufacture to software services, and any company that couldn't keep up with 'dematerialisation' would suffer, he knew. In the DEMAT future, information was value, and it wanted to be as free of material entrapments as possible. The challenge was to identify precisely what kind of information could add the most value to business processes-and these were the sub-migrations he had to detect, ahead of the curve, to gain an edge.

Some 25 years ago, Varma's garage team was a revolutionary force. Today, BDL was not even a change agent, and Varma worried whether his company had become too bureaucratic, risk-averse and preservation-minded, to reshape the market. Could he inject it with the raw entrepreneurial passion that created BDL to begin with?

The founder looked at his executives. Then, "Acquisitions," he announced. All eyes turned to him. "Global acquisitions."

That was enough to charge the room with excitement. "Our balance sheet has Rs 1,200 crore in reserves," smiled H. Mathur, the CFO, "And valuations have never been lower. We can bargain hunt."

"Yes," said Varma, "We've had valuable foreign partnerships in the past, and we can rework the magic now. Software is a global business. There's nothing like a good alliance to stimulate ideas, encourage talent, and energise business."

Thus, the meeting ended. Things worked speedily, after a merger team was instituted, headed by T.P. Rangachary, who made it clear that the idea was to correct deficiencies in the product portfolio. Mathur wanted the deal structured to minimise integration problems. "We won't pay more than 1.5 per cent of market cap," he said.

The next few months saw BDL snap up 51 per cent of MES, an enterprise application software firm, for $2.9 million. Next, it acquired a majority stake in the Germany-based Mondo Software, a banking software company, for $25 million. Then it got 90 per cent of an Irish call centre, Delfast Diana, for $11.5 million, followed by Gulf Tech, which was working for many US state departments, for $13 million.

For just $63 million, BDL Technologies had got businesses delivering revenues of $85 million for the latest quarter, and that too, from diverse fields of enterprise, with clients so different that they'd probably need an interpreter to converse with one another.

As Varma assured the managements of the acquired firms, BDL was not interested in taking day-to-day control. "You guys run the show," he told them. The performance chart that BDL brought in, to judge the management, was no different from what was the standard worldwide.

The idea was not to let the 'takeover' word scare anybody. The strategic reason for the acquisitions, Varma told the CEOs privately, had nothing to do with the imposition of BDL's worldview. But yes, BDL wanted a direct line on customer feedback. It also wanted its Indian marketing professionals to gain access to global customer satisfaction benchmarks, particularly on 'DEMAT' issues.

The overseas staff appreciated it. But back in Delhi, the BDL board was asking pointed questions.

"What's the point?" asked a boardmember. "What's the strategy? These are a completely ill-fitting bunch of firms from all across the world, and their value remains what it was when we bought them. If we're not running them, how are we gaining anything?"

"Shankar," began another board member, "We're with you. We've always been with you, and we trust your gut. But seriously, Shankar, we can't let these firms drain our resources. Why be soft on them?"

The first board member re-entered the argument. "Shankar," he said, "we don't want to be a pain. But this business has come from a garage to this place because it has always been clear about its future. HDL has always been able to confront facts fair and square. That's why I ask: isn't this an open-and-shut case of buying revenue?"

The question was blunt, but Varma had handled bluntness before. He cleared his throat to speak.

What should Varma say to defend his acquisitions?

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