Striking big – mutual funds and global connections


In this article we are highlighting how globalization and highly skilled work force is attracting world companies to set up or merge their conglomerated in India. All categories of firms from manufacturing to mutual funds are showing their keenness to use India as their base and capture local and export markets as they are confident of heir competitiveness in world markets due to fewer overheads and hard working skilled manpower.

In one of the largest private equity deals in India, an affiliate of US-based Kohlbeg Kravis Roberts & Company has decided to buy the software development and solutions business of Flextronics International for $99 million. The deal involves eight companies, including Indian-operated Flextronics Software System (FSS). About 85% of the 6,100 workforce of FSS is India-based.

The private equity fund has made investments in companies like SunGard Data System and Avago Technologies which are considered to be the two largest private equity technology investments in history, at $11.8 billion and $2.8 billion.

Flextronics International is a Singapore-based, $16 billion contract manufacturer which makes products of telecom, IT and automotive firms like Sony Ericson Motorola, and Dell. Flextronics has sold FSS to KKR within two years of buying Hughes Software Systems, which had a substantial presence in India.

FSS officials said that Flextronics will receive over $600million in cash and will hold $250 million of debt instrument that will mature in eight years. Besides, Flextronics will retain 15% stake in the new entity. The purchase price is subject to customary working capital and certain other post-closing adjustments. Flextronics expects the-tax gain on the sale transaction to be approximately $175 million, said Flextronics in a statement, which officials did not elaborate further. In 2004, Flextronics had bought 55% of HSS for $226million and it recently acquired over 90% of the company and de-listed it to merge it with other buyouts.

After the HSS acquisition, Flextronics went on to buy six more companies in India and abroad—all of which are part of the deal, including another of its companies, Frog Design. The other six companies that Flextronics bought were: FutureSoft, eMuzed, AUCT Consulting, Deccnet, Azisa and Avnisoft.

Flextronics iS now in the process of merging the firms, including HSS into one legal entity to be known by another name. The current management will continue after the KKR deal is completed, with the president and MD of FSS, based in India and the CEO based in the US.

Software business apart, Flextronics is betting big on India for its EMS (electronic manufacturing services) business. It is making investments in India for its contract manufacturing business and new plants are coming up in Chennai. It has also decided to pick up about 5% equity for $50 million in NRI consortium SemIndia, which will be the country’s first chip manufacturing plant that will come up in Hyderabad.

Our inference is very clearly outlined in the introductory paragraph to this article and the above mentioned details are self explanatory.