eClerx Services - Acquires media and telecom focused company; event update; Buy; Edelweiss PDF link

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eClerx Services (ECLX IN, INR 734, Buy)

eClerx announced the acquisition of Agilyst, a niche pure play back office operational and analytics company focused on cable and broadband community in North America. It’s an USD10mn revenue (FY12) company, employing 1,000 currently and a business model identical to eClerx. Deal size has not been disclosed and includes high earnout component as well. We believe with this acquisition, eClerx has got a foot in a new vertical which presents an opportunity to build large customers (USD8mn-12mn) as it ramps up. At 11.4x FY13E earnings we maintain ‘BUY’.

Deal contours

The all cash deal includes substantial earn out component based on Agilyst’s future performance. The transaction will be internally funded. eClerx had cash of INR2.0bn i.e., INR69 per share as at December 2011 on its books. Agilyst will operate as a fully owned subsidiary and its management team will continue to manage day-to-day operations.

About Agilyst

Founded in 2007, Agilyst delivers non-voice processing and analytics services. It includes critical error identification, customer experience analysis and end user support services. The company is expected to generate just under USD10mm FY12 revenue and is profitable. It employs 1,000 currently and has a delivery centre in Chandigarh.

Outlook and valuations: Positive; maintain ‘BUY’

We believe this transaction opens up a new vertical and is a good strategic extension to eClerx’s current business (due to similar business model that relies on domain knowledge, client context and focuses on automation). It also brings on board a delivery team in a tier-2 city. Further, due to condensed market share in the US telecom and cable space, scalability of individual accounts could be high. Overall, we believe this acquisition expands addressable market, reduces client concentration and diversifies vertical dependency. At 11.4x FY13E earnings, we maintain ‘BUY’.

eClerx Services - Acquires media and telecom focused company; event update; Buy

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