NTT Data Buys a Foothold in the U.S. Info-Tech Market

NTT Data, a major info-tech player in Japan, has taken notice of the rising fortunes of IT services company Intelligroup (ITIG). In the most recent quarter, Intelligroup's revenues increased 8.7% to $33.5 million, and net income came to $2 million. The company added 33 new customers.

That led NTT Data to pay $199 million for Intelligroup. The bid is for $4.65 per share, a 28% premium over Friday's close. Intelligroup's major investors, Fund LP and Venture Tech Assets Private, have already agreed to the deal (their combined ownership is 63%). Intelligroup closed up 97 cents, or 26.6%, on Monday.

Down-Market Sweet Spot

Traded on the OTC marketplace, Intelligroup has gotten little attention from investors. Yet, the company has built a solid business. Basically, Intelligroup helps companies implement enterprise resource planning (ERP) systems, with a particular focus on SAP (SAP) solutions. These kinds of services tend to be long-term and generate high contract values.

Traditionally, ERP has been for large organizations. But over the years, the software providers have gone down-market, which is Intelligroup's sweet spot.

While the past couple years have been slow -- because of businesses cutting capital spending -- it does look like things are improving for Intelligroup. At the same time, the company has taken the necessary steps to cut its own costs.

Why Buy Intelligroup?

NTT Data is actually a subsidiary of Japanese giant Nippon Telegraph and Telephone, which generates roughly $12.7 billion in revenues. So yes, a company like Intelligroup is certainly a small player.

Then again, NTT realizes it needs to expand its international footprint and find ways to move beyond its data-services business. And the U.S. market is definitely attractive and should regain its footing over the next couple years. Besides, Intelligroup has a strong customer base, a powerful set of IT tools and healthy margins. This deal should be a good start for NTT to make its mark in the U.S.