Following their successful stint of going public, Quess Corp recently made the news again with them acquiring Manipal Integrated Services, promoted by Ranjan Pai. This move comes in a line of a host of investments done by Quess to expands its business line. In recent months, these have come to include purchasing significant stakes in companies like the Singapore-based Comtel Solutions Pte Ltd in which Quess Corp had announced it would acquire 64 per cent stake for along with investments to buy 49 percent and 45 percent stake respectively in Terrier Security Services (India) Pvt. Ltd and Simpliance Technologies Pvt. Ltd. respectively.
The details of the deal
With an aim to enter into newer markets segments, Quess Corp has had a focused strategy when it comes to expanding and strengthening its various product lines. Taking a closer look at the recent set of acquisitions, one finds ample support for the same. According to the Economic Times, "the acquisition of Manipal Integrated Services(MIS) helps the company increase its staffing option in sectors like Healthcare, Education, and BFSI. MIS which runs the facility management, food services, and hostels business of the Manipal Education and Medical Group (MEMG), in addition to servicing marquee third party clients. Serves to more than 120 clients across such sectors with an expected a revenue of Rs 426.5 crore in the financial year 2017."
Quess Corp, in its press release, mentioned that Quess and MEMG, with this agreement, have entered into a long-term partnership under which Quess will provide facility management, catering and security services to all MEMG affiliated entities for a minimum period of five years. The company also stated that it will initially invest around Rs 220 crore by subscribing to Convertible Preferred Shares (CCPS) of MIS for securing an interest in the Facility Management and Catering Businesses, development of the same and facilitating the demerger of the same businesses, the filing said.
“The Facility Management and Catering businesses of MIS will subsequently be demerged into Quess pursuant to a Scheme of Arrangement that will see Quess issue approximately seven million one hundred and fifty thousand equity shares to equity shareholders of MIS” added the company.
Commenting on the relevance of this partnership, Ajit Isaac, Chairman and CEO of Quess Corp said, "The acquisition helps build our facility management capabilities in the healthcare and education sectors with a focus on delivering higher value-added services to clients. In addition to being non-cyclical sectors, the investment is margin accretive and in line with Quess’ philosophy of backing strong management teams."
Similarly in the case of Quess buying stakes in companies like Simpliance, a Bengaluru-based compliance technology firm that provides compliance process management, or the Singapore-based Comtel Solutions which provides IT staffing solutions and is one of Singapore’s leading staffing firms ) are aimed towards expanding the company’s services, in terms of both sectors and geographies.
Managing growth with business profitability
Quess Corp. at the beginning of the financial year 16-17, was pegged to be one of the most promising businesses within the staffing domain in India, with Crisil Ltd estimating it to increase from Rs.20,000 crore in revenues in FY14 to Rs.62,500 crore in FY19. In light of such strong projections, the company has traditionally always said that it would meet this growing business demand to expand by investing heavily in companies that support the expansion of its four core business segments- namely, Global Technology Solutions, People & Services, Integrated Facility Management, and Industrial Asset Management.
But the strategy of expanding through acquisitions, often, comes with its own sets risks. As of March 31st, The Mint reported that the company due "its high working capital needs and appetite for acquisitions, was left it with a debt of Rs.390 crore, leading to a debt-to-equity ratio of 1.13 times."
This led to the Indian staffing firm raising 400 crores from the public as submitted its papers to the Securities and Exchange Board of India (SEBI) during the month of May 2016. After a successful Initial Public Offering which saw its issue price open at rates significantly higher than what was expected, Quess has got a further boost from the market which currently has a positive feeling about the company’s growth. But with it still facing high debts and many of subsidiaries like MFX Services and Brainhunter just recently beginning to break-even, it becomes important for Quess to manage the strain that acquisitions put on its balance sheets.
Managing the risk that comes with rapid acquisitions and the purchase of stakes in various companies, would require the business to improve profitability and generate positive cash flows. Although the company reported a strong 65.9% year on year jump in consolidated net profit at Rs 30.10 crore for the quarter ended September 30, 2016, the business would still require a strong impact of these acquisitions on the bottom line of the company. Especially to calm down its investor's anticipation and to ward off the threat that the growth of close competitors like Team Lease poses.