Mid-July 2007, France Telecom, through its group company Orange Business Services, acquired the enterprise and managed services division of Mumbai-based GTL in an all-cash deal. For a reported acquisition price of about Rs 2.5 billion, France Telecom has managed to make a comeback into the Indian telecom market, which it had quit in 2003 after selling its 26 per cent stake in BPL Mobile, a cellular operator in the Mumbai circle.
While BMR Advisors was the consultant and due diligence partner for France Telecom, Standard Chartered acted as the lead adviser to GTL. Aside from France Telecom, BT was also in the running for GTL’s enterprise business.
For France Telecom, which offers integrated business communications solutions spanning consultancy, data, voice and video, mobile and fixed communications services, the deal will help it consolidate and establish itself as a major player in the enterprise networks segment. Orange will not only benefit from a significant customer base, a dedicated sales force and skilled professionals but will also look at forging relationships with leading technology providers in the enterprise networks space. GTL’s over 450 customers and major presence in the banks and financial services institutions and ITeS segments will certainly be of help. Some of its clients include Citibank, Standard Chartered, Deloitte, WNS and First Source. The company also has relationships with leading technology providers such as Alcatel-Lucent, Nortel, Juniper, Patchlink, Arc Sight and Verint in the enterprise space, besides serving customers from 13 locations in India and internationally in countries like the US, the UK, Singapore and Sri Lanka.
The acquisition could not have been better timed, as Orange Business Services CEO Barbara Dalibard stated: “India is a key growth market for our customers. The acquisition of GTL’s enterprise and managed services divisions broadens our ability to deliver best-in-class enterprise services and solutions to our customers throughout the region, including customers in India.
It is also in line with the company’s strategy to gain a foothold in one of the world’s fastest growing telecom markets.According to Didier Lombard, chief executive of France Telecom, the company had been looking for opportunities in India for some time now and was exploring several options to enter this market. However, Lombard added that they were looking at “modest options” considering the high prices of telecom assets in India.
For GTL, which is considered among the top providers of managed services to corporates and BPOs in India, hiving off its enterprise and managed services division was a strategic decision. As part of its ongoing restructuring programme, it made business sense to concentrate entirely on its core competency ?? network services ?? which is expected to bring in Rs 15 billion in revenues this fiscal year. Besides, says GTL chief operating officer (COO) Charudatta Naik, “the proposed divestment is not likely to impact the revenue growth of GTL. The 30 per cent growth envisaged is based on the network services in the telecom domain and does take into account the hive-off of the enterprise segment. We have already shared our order visibility of Rs 16 billion, which is based purely on telecom services.
Therefore, for GTL, it is mainly a matter of freeing up resources to focus on adding capabilities across the entire spectrum of the network life cycle of telecom operators and technology providers.According to company officials, since the margins from segments like network planning and design, network operation and maintenance, and professional services are high, it makes more sense to push these segments in order to increase their contribution to revenue from 20 per cent to 40 per cent.
Overall, the deal is a win-win proposition for both sides. While analysts tracking the GTL stock believe that the hive-off would be beneficial to GTL as it would enhance the returns on the capital employed and earnings per share, for France Telecom it would mean getting an entry into the country’s rapidly growing telecom sector. Also, post-acquisition, Orange gets GTL’s enterprise and managed services business which registered revenues of over Rs 1.4 billion in fiscal year 2006-07 and over 590 employees, including more than 200 engineers, trained in various skill sets in converged solutions, data technologies and infrastructure management.
