Why did Arun Jain sell Polaris Consulting and Services?

Arun Jain and a few other shareholders of Polaris Consulting and Services Ltd (PCSL) on Thursday entered into a share purchase agreement by which they will sell the 53 percent stake they hold in the company to Massachusetts-based Virtusa Corporation for a consideration of Rs 1,173 crore. 

 

Why did Arun Jain exit PCSL? After all, he had built Polaris's software services business painstakingly for more than 20 years from scratch to Rs 1,800 crore. Diminishing passion appears to be the prime reason. "I would like to spend my time where my heart is," he said when asked why he decided to exit PCSL. Of late, he has been thinking of foraying into social impact projects in the spheres of health and education, but managing both the software services and product businesses of Polaris left him with no time. Not able to focus on the social impact projects irked him. One day while doing his routine meditation in the morning, a thought occurred -- exit the software services business.

Two developments helped him translate that thought into reality. Last year, he had already demerged Polaris's software services and product businesses into two distinct entities. So, Polaris Sofware Lab was split into two companies. Intellect Design Arena was incorporated to house the products business in the banking and insurance space while the software services stayed with Polaris Software Lab which was then renamed Polaris Consulting and Services Ltd. The idea then was give the two very different businesses a clear focus when it came to investment, building competences, decision-making and processes to drive the businesses to the next level. 

Jain's passion when it came to his products business remained strong. "There is a lot of innovation involved there," he said. "It is also growing at 30 percent." Thanks to the bifurcation (he does not say if he brought about the bifurcation to exit software services), he could exit the services business.

The other development was the meeting with Kris Canekeratne, chairman and CEO of Virtusa Corporation. It took place in Chennai on March 16, 2015, at Madras Club, one of the oldest clubs in the country, founded way back in 1832. What was budgeted as a 90-minute meeting went on for four-and-a-half hours. "We realised that both of us had similar ideologies when it came to software engineering, customer centricity and values," said Canekeratne at the press conference organised to explain the deal. That meeting gave Jain the confidence that Virtusa could well be the ideal suitor for PCSL. "I found a great leader whom I can trust and pass on my baton to," said Jain.

There was business rationale too. With 11,000 employees, Virtusa has been growing at 23 percent CAGR over the last 10 years. "We saw that acquiring PCSL would greatly expand the services we offer, expand our addressable market and help us win much larger outsourcing projects," said Canekeratne. "The revenue synergy in the first year itself is $100 million. Also, there is very little channel conflict as the overlap of clients is minimal." Virtusa will be shelling out $270 million for the acquisition.

Now that the deal has been inked, Jain is keen to get his social projects moving apart from giving a renewed focus to Intellect. With the money he will get from selling the PCSL stake, he plans to start two trusts  -- one focussed on health care and the other on education -- with a funding of Rs 100 crore each. "On the health care front, I would like to start a chain of low-cost hospitals to provide affordable health care," he said. Technology will play a critical role in the project. On the education front, he wants to focus on research. "Research is one area where India lags, so I want to focus on that," he said.