Needed : An Indian SOX

With the Satyam accounting scandal that has not just rocked the Indian IT industry but overall the Indian business community, the need for stricter norms for publicly traded companies is loud and clear. It is surprising that no one is yet talking but just like Enron, Worldcom and other disasters led to the Sarbanes Oxley regulation in the US, this is the right time ( though late) bring about such a regulation to ensure such disasters are never repeated.

That the business of business is business is known, but when businesses go about creating or evaporating wealth by doing pure accounting, the impact is felt across the socio economic levels of not just the country but globally in case of such enterprises.

A lot of Indian IT companies are taking extra pain to demonstrate their transparency and voluntarily going ahead with key disclosures to substantiate their financial position. This is a great booster and helps enhance the credibility of the industry which many perceived to have taken a beating with the events of the past week. 

Satyam - The End of A Beginning or The Beginning of An End?

The events of this week with Satyam Computer Services, India's fourth largest IT services company, has left all shocked and stumped.

Industry associations and government are keen to ensure that this does not in any way dampen the "India story". In a basket of mangoes, there can be a few bad mangoes which does not make the basket bad. Enron did not mean that all American business enterprises indulge in fraud and similarly this is an aberration which needs to be highlighted and quickly addressed.

The customers, employees and shareholders are the most impacted with this. For others, it is more on an "environment news" - but for anyone who is one of these, the damage is closer and devastating for employees and shareholders.

It is good to see that the government has taken up some rare and unprecedented action ( at least to my knowledge) of instilling this confidence by constituting a new board. Once the true state of the finance position is known, the team will chalk out a program to stabilize, recover and then grow.

This is important for Satyam and for the offshoring and IT outsourcing industry from India in general. Something to closely watch and these events just reinforce that nothing can be taken for granted.

Satyam Computer Services : An Acquisition Candidate?

While a lot has been written recently on the developments at Satyam Computer Services in the recent week, clearly with the directors resigning including the high profile Vinod Dham, it has impacted their image. The recent World Bank issue which reportedly banned any business withthem for few years did not help any further either. There is more news tumbling on the nature of holdings by the promoter but this post is not about these developments really, but their possible impact in terms of a possible acquisition.s

So, is Satyam a good candidate for acquisition by either traditional onshore providers (like IBM) or even offshore players (like Infosys or TCS)? It may not be as easy, even when the time comes after the next quarterly announcements which is expected to clear their holding and cash reserve position. Here are some considerations:

1. It is too big with over 50,000 employees for a simpler acquisition assessment
2. It has been aggressive with its pricing, often taking on business with lower margins which may not fit every company's norms
3. It has a very negative image currently with possisble impact on future earning potential which does not strengthen a case for letting it exist as a separate entity after the acquisition
4. It would not bring any differentiator to at least the offshore based providers, except access to a resource pool of their employees and the existing customer base. No major technology or service differntiator would be involved.
5. For onsite based providers, most who wanted an India story have a big India presence already (IBM has over 70,000 employees) and so it may at least appeal to a major onshore based provider which was left behind in building an India story. This probably would be from a European provider as most US based onshore providers already have a big India presence.
6. While always counted among the top 5 of offshore based players, it was probably the one without a professional management team, when looked at by outsiders. There are others also in the Top 5 who are also led by the founder or his family but with all other factors inclcuded Satyam stood out in that count.
7. The current economic climate does not motivate many to look at Satyam for an acquisition in an all-cash kind of deal.
8. There has been a start of exodus and poaching of some of their brighter employees which will only worsen with time, if a promising suitor doesn't move quickly
9. Satyam has played in most segments but does not lead in many and by too much. The best areas known as its SAP practice and to some extent its engineering services practice.
10. The promoters have caused damage with the news trickling and their other interests (in real estate etc.) to make any new company do a thorough scrutiny of its books before deciding on it.

Surely a story to keep tab on in the coming weeks.