Silverline enters global Web consulting race

Eric Auchard

NEW YORK: The acquisition by India's Silverline Technologies Ltd. of

ServaNova Inc. creates a highly competitive global software development and

Internet consulting firm, officials said.

While the $99 million merger is small by US standards, the combined company's

2,300 engineers, its presence in major business markets, and its combination of

traditional computer expertise with new e-business consulting services could

make it a major challenger to established Internet services providers.

These factors, undergirded by Silverline's access to a vast pool of Indian

engineering talent, pose a threat to US and European consultants who are

struggling to maintain their profit margins amid intensifying global

competition.

Terms of the deal, announced on Friday, call for SeraNova shareholders to

receive 0.35 of a Silverline American Depositary Receipt for each SeraNova share

held, in a deal valued at about $99 million.

"We are the only e-business company that has offshore capability,"

SeraNova chairman and chief executive Raj Koneru said, referring to his own

company's global reach and low-cost, by Western standards, Indian talent base.

He made the comments in a conference call with investors following the

announcement of the deal.

Silverline is one of a new breed of fast-growing Indian software firms that

is now playing on the global stage, both as a company serving a multinational

customer base and as a stock listed on both the Bombay and the New York stock

exchanges. It is joined by fellow Indian players such as Infosys Technologies

and Wipro Ltd. .

Silverline sees SeraNova boosting profits in 2001



Mumbai-based Silverline, with its expertise in supplying software support for
complex traditional computer systems, on Friday said it will buy Piscataway,

N.J.-based SeraNova, which offers consulting services to multinational

companies.

SeraNova specializes in helping customers build new Internet strategies on

top of their existing back-office computer systems.

"We don't do anything other than e-business. We don't take any legacy

business on board," Koneru said, as he sought to differentiate his

company's thrust from contract software programming work maintaining older

computer systems.

Silverline's ADR shares on the NYSE added 50 cents to close at $16-3/8 once

the deal was unveiled. Meanwhile, SeraNova shares fell 3/8 of a point, or 8 per

cent to $4-1/16 on Nasdaq.

"We expect this transaction to close during early 2001. The most

important thing is that it (the acquisition) is expected to accrete to earnings

in 2001," said Silverline president and CEO Shankar Iyer during Friday's

conference call.

SeraNova offers business strategy and consulting services to Fortune 500 and

Global 2000 companies.

Company officials sought to contrast SeraNova to many other Indian services

companies that perform contract programming tasks to meet Western company

designs. Instead, Koneru said his company offers a range of higher-level

consulting services that allow it to offer a complete package of services - from

strategy advice to software design to implementation.

SeraNova gives Silverline Web strategy, project management



Koneru said his company was "100 per cent a project management
company" that only works on software services projects that it manages

itself. SeraNova consultants typically work with clients from offices in the

United States, London and Sydney. The bulk of the systems development and

programming work is performed in India at both companies.

"I think the synergies are apparent and achievable," Iyer said in

describing the advantages of the deal.

"We hardly have any major customer overlap," he said, implying the

two companies can cross-sell services to each other's clients, which already

include American Express, Hewlett-Packard, J P Morgan and Volkswagen of America.

Iyer said the combined company will operate at a 20 per cent operating margin

rate - a significantly higher rate than those of Internet consulting firms with

operations focused in industrialized countries.

While many stocks in the Internet consulting sector are trading 80 to 90 per

cent below their year highs and both companies' stocks are trading near

year-lows, the merger creates a more competitive industry force, SeraNova chief

financial officer Robin Sing said.

(C) Reuters Limited 2000.