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    Valuing Sify's Acquisition in India World

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    Sushant Saxena
    The document summarizes a case study about Sify's acquisition of IndiaWorld in 1999 for Rs. 4.99 billion. This was one of the largest dotcom acquisitions in India at the time in terms of deal amount. The acquisition was done through a two-phase all-cash deal. However, analysts were skeptical of the high valuation since IndiaWorld had only reported net profits of Rs. 2.7 million on revenues of Rs. 13 million the previous year. While Sify argued the deal was strategically beneficial by adding IndiaWorld's large overseas Indian audience, others believed the valuation was overly optimistic and based on future potential rather than current performance. The case highlights challenges in valuing internet companies using traditional valuation models

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    Valuing Sify's Acquisition in India World

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    Sushant Saxena
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    The document summarizes a case study about Sify's acquisition of IndiaWorld in 1999 for Rs. 4.99 billion. This was one of the largest dotcom acquisitions in India at the time in terms of deal amount. The acquisition was done through a two-phase all-cash deal. However, analysts were skeptical of the high valuation since IndiaWorld had only reported net profits of Rs. 2.7 million on revenues of Rs. 13 million the previous year. While Sify argued the deal was strategically beneficial by adding IndiaWorld's large overseas Indian audience, others believed the valuation was overly optimistic and based on future potential rather than current performance. The case highlights challenges in valuing internet companies using traditional valuation models

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    The document summarizes a case study about Sify's acquisition of IndiaWorld in 1999 for Rs. 4.99 billion. This was one of the largest dotcom acquisitions in India at the time in terms of deal amount. The acquisition was done through a two-phase all-cash deal. However, analysts were skeptical of the high valuation since IndiaWorld had only reported net profits of Rs. 2.7 million on revenues of Rs. 13 million the previous year. While Sify argued the deal was strategically beneficial by adding IndiaWorld's large overseas Indian audience, others believed the valuation was overly optimistic and based on future potential rather than current performance. The case highlights challenges in valuing internet companies using traditional valuation models

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    118 views3 pages

    Valuing Sify's Acquisition in India World

    Uploaded by

    Sushant Saxena
    The document summarizes a case study about Sify's acquisition of IndiaWorld in 1999 for Rs. 4.99 billion. This was one of the largest dotcom acquisitions in India at the time in terms of deal amount. The acquisition was done through a two-phase all-cash deal. However, analysts were skeptical of the high valuation since IndiaWorld had only reported net profits of Rs. 2.7 million on revenues of Rs. 13 million the previous year. While Sify argued the deal was strategically beneficial by adding IndiaWorld's large overseas Indian audience, others believed the valuation was overly optimistic and based on future potential rather than current performance. The case highlights challenges in valuing internet companies using traditional valuation models

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    Articles

    Case study
    Valuing Sify's Acquisition of IndiaWorld
    - VS Murthy
    The case provides details of Sify's acquisition of IndiaWorld, including the structure
    of the deal, its perceived synergies and the criticisms leveled against the huge
    amount paid for the acquisition. It highlights the problems encountered when
    valuing dotcom companies using traditional models of valuation and describes
    certain valuation models that were devised for valuing dotcom companies.
    This is the first time an Indian company has paid for a strategic value of this size to
    demonstrate leadership. People will realize this is necessary eventually.
    Rajeev Memani, Partner, Ernst & Young.
    A Landmark Acquisition
    Established in December 1998 in Secunderabad (Andhra Pradesh, India), Satyam
    Infoway Limited (Sify) was one of the first private Internet Service Providers 1 (ISP)
    in India. On November 29, 1999, the company announced that it would acquire the
    entire equity stake of IndiaWorld Communications Private Limited for Rs. 4.99 bn.
    This was one of the first and the largest dotcom acquisition 2 in terms of deal
    amount in India.
    The acquisition was done through an all cash deal3, which had to be executed in two
    phases. In the first phase, Sify had to acquire a 24.5% stake (49,000 shares) in
    IndiaWorld for Rs. 1.22 bn, after the deal was announced in November 1999. In the
    second phase, Sify had to purchase the remaining 75.5% stake (1,51,000 shares)
    at Rs. 3.25 bn, in cash, before September 30, 2000. Sify also had to pay a
    nonrefundable deposit of Rs. 513 mn, which it would forfeit, if it did not complete
    the second phase of the deal.
    The deal surprised stock market analysts and merger and acquisition gurus both in
    India and abroad. According to an employee at Rediff.com4, "People didn't believe
    that the value of the deal could be Rs. 4.99 bn. Some of us felt it was a wire agency
    mistake." Financial analysts too were taken aback. The question on everyone's
    mind wasDid Sify take the right decision, investing Rs. 4.99 bn in IndiaWorld, which
    had reported a net profit of Rs. 2.7 mn on revenues of Rs. 13 mn in the financial
    year 1998-1999? How did Sify arrive at a figure of Rs. 4.99 bn figure while valuing
    the acquisition? What strategic and financial benefits accrued to Sify from this
    acquisition? Does it really make sense for Sify to invest Rs. 4.99 bn for IndiaWorld's
    0.2 million shares, paying a whooping amount of Rs. 24,950 for each share of
    IndiaWorld, which had a face value of Rs. 10?
    Some analysts were of the opinion that the deal was grossly overvalued. Expressing
    his concerns, Manish Gunwani, a Financial Analyst at SSKI,5 said, "There aren't too
    many popular Indian portals and IndiaWorld had a high profile. Even then, the
    valuation seems very stretched. It's based on what may happen, not on current
    realities." Analysts also drew comparisons with leading software company Infosys,
    whose Rs. 10 paid up shares quoted at Rs. 9,250 on November 30, 1999.
    However, Sify's CEO and Managing Director, R Ramaraj, remained confident about
    the deal. He said, "The acquisition would be a good strategic fit to Satyam
    Infoway's portal business, adding a large overseas Indian audience to the large
    India-based audience that www.satyamonline.com currently enjoys. The combined
    portal network is expected to be a mega portal for India interest audience in India
    and elsewhere."
    Valuing Dotcoms
    The objective of valuing any company is to determine a fair price that an investor
    should pay, to buy an equity stake in the company. Traditional methods for valuing
    firms were developed for Brick and Mortar (B & M) companies which had tangible

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