Another Satyam Acquisition

Why it makes sense for Satyam Infoway to buy an US-based on-line mall that is focused on India.

By E. KUMAR SHARMA

Forging alliances--or cementing ties with equity stakes--has all along been Satyam Infoway's (Sify) preferred route to boost its on-line profile. The country's first NASDAQ-listed Internet Service Provider (ISP) created history of sorts last year when it announced a Rs 499-crore deal to acquire IndiaWorld. Early July, 2000, the deal was completed, as planned, though the all-cash transaction was converted to part cash and part stock.

Now, stepping up a gear, it recently announced the acquisition of Indiaplaza.com, a California-based worldwide India--interest on-line shopping mall in a $8.1 million all-stock deal. Says R. Ramaraj, 49, CEO, Satyam Infoway: "Indiaplaza is a good fit for Sify and compliments the acquisition of IndiaWorld, which is a customer-acquisition portal. Indiaplaza's shopping mall on the Net, its logistics backbone and predominant focus on e-Commerce is expected to go a long way in raising the e-Commerce revenue potential of Sify.''

Indiaplaza.com owns and operates on-line shopping malls in the US, UK, and India, and caters to shopping requirements in a wide range of products, ranging from food, fashion jewellery, handicrafts, 'rakhis', and sweets. It has tie-ups with vendors and distribution channels.

Earlier, close to three months ago, Sify acquired a 25 per cent stake in cricinfo.com for $ 37.5 million in stock. Ramaraj explains: ``The major benefit of a stake in cricinfo.com is the hold that it gives in a leading cricket portal, apart from the revenues that are likely to be generated.'' According to the deal, 20 per cent of cricinfo.com's Indian revenues will come to Sify. Last year, cricinfo.com had an advertising revenue of $3.3 m and in this, 30 to 35 per cent was from India. This figure, Ramaraj expects, would grow exponentially in the future and correspondingly benefit Sify. In addition, Sify also acquired a 30 per cent stake in prizedjobs.com which is also expected to yield benefits through a revenue sharing arrangement.

Talk of acquisitions and questions of valuation be far behind? Some market watchers, however, tend to feel that the Indiaplaza, with its popularity in the US and UK markets, has been a good deal at $8.1 m, but the cricinfo deal is perhaps "slightly overstretched". Little wonder, therefore, that Sanjiv Agarwal, 34, Head (Net group), Ernst & Young, which had played a role in the celebrated Sify-Indiaworld deal says: ``The Indiaplaza deal looks attractive, but the same cannot be said about the deal with cricinfo."

In June, 2000, Sify also announced its tie-up with America Online (AOL). The two entered into a multi-year agreement to distribute a co-branded version of the AOL Instant Messenger Service to Satyam Online's ISP customers, its portal and affiliated Websites. The service is expected to allow Satyam Online Net access and portal users to exchange real-time instant messages with both Satyam Online subscribers and AOL users. "The benefit that Sify saw in this deal with AOL Instant messenger is that it will build relationship with the most popular messenger service, and help in community building, which could be leveraged for more advertising revenue,'' says Ramaraj.

"We look for any opportunity that gives us a chance at consolidation,'' he adds, listing out the four criteria that the company looks at in any consolidation exercise: leadership, revenue opportunity, getting a space in the market, and getting new markets.

It would perhaps help if one were to look at the sobering thought that Ernst & Young's Agarwal has on the prospects for the horizonal portals in the future. Says he: "With the biggies like Yahoo!, MSN, and others entering the country, market is getting a little adverse for the Indian-brand horizontal portals.'' This, he feels, is perhaps reflected in what he perceives as an element of caution and conservatism in the domestic players' investment decisions.

Nevertheless, the market in general may be still favouring Sify's attempts at beefing up content as Kenneth Andrade, 30, portfolio advisor, Sharekhan.com says: "Sify, perhaps, seems to be able to use its market cap to get stock swaps in its favour.'' More importantly, in the domestic turf, where there is very little difference in the revenue models between horizontal portals, Sify has the benefit of being an ISP and a horizonal portal. Thus, including ISP subscriptions, advertising, and e-Commerce as revenue streams. For the moment, however, Sify seems to be banking on alliances in its effort to create wealth from the Web.

Issue Contents Write to us Subscriptions Syndication