Summit Partners Buys Into Zenith Infotech Unit

US-based private equity firm Summit Partners is acquiring a significant stake in the managed services business unit of BSE-listed Zenith Infotech, which was spun off last week. The deal involves Summit Partners making 'a sizable growth equity investment,' which may also involve taking a majority stake in the company, along with the management. Summit Partners is also appointing two team members to the board of Zenith RMM LLC, the spun-off unit.

Summit Partners made its debut in India last year with $30 million investment in Krishidhan Seeds Ltd (KSL), a commercial seeds manufacturer based in Maharashtra. The US-based private equity fund with $11 billion assets under management also has a five-member India team operating out of London. However, this deal has been led by its Boston office. Summit's managing director John Carroll and Principal Jason Glass have joined the board of Zenith RMM.

Zenith informed the exchanges last week that it had "spun off one division of its business known as the MSD Division to M/s. Zenith Monitoring Services Pvt Ltd, Mumbai, which will be a subsidiary of Zenith RMM LLC, by way of an asset purchase agreement. However, Zenith Infotech Ltd is going to be a major shareholder."

Boston-based Zenith RMM will provide a SaaS-based managed services platform that managed services providers (MSPs) use to monitor, troubleshoot and maintain desktops, servers and other endpoints for small and medium-sized businesses (SMBs). The company entered the managed services market in 2005 and currently has on board around 3,000 MSP partners using the Zenith RMM platform to manage almost 400,000 endpoints.

Zenith RMM has also roped in Michael George as its new CEO, who had earlier led Greylock and Matrix Partners-backed RFID software leader OATSystems. The company was acquired by NASDAQ-listed Checkpoint Systems in 2008.

The share value of the company witnessed some seesaw movements on the BSE on Monday, with the price rising nearly 7 per cent to Rs 195 per share in the morning. However, it was trading at Rs 167.4 per unit at 12.20 pm, down 8.3 per cent. The share price finally closed at Rs 179.95, down 1.53 per cent.

Zenith's other businesses including data backup and disaster recovery will stay with the listed company.

Zenith Infotech reported over 21 per cent increase in net sales to Rs 379.04 crore, with net profit (before exceptional items) slipping by 43 per cent to Rs 41 crore in FY11. The company also owns outstanding FCCBs of over $77 million, of which $27 million were to mature in September 2011 and the remaining $50 million in 2012.

"The newly formed company plans to focus its efforts and invest to accelerate product development, improve its market-leading service and expand its thought leadership," Summit Partners said in a statement.

"Today's announcement represents a focused and strategic approach to better address the overall needs of managed services providers," said Akash Saraf, managing director and CEO of Zenith Infotech. Saraf will be a member of the board at Zenith RMM.

"We are very pleased that Michael George, a proven executive with 25 years of experience in leading high-growth software companies, has joined Zenith RMM as the CEO. Michael is recruiting a world-class management team and, as a very customer-focused and market-centric executive, he will quickly engage Zenith RMM's partner community to discuss the company's strategies for accelerating growth – including an elevated channel enablement programme and expansion of the company's leading platform for managed services providers," said John Carroll, a managing director at Summit Partners.

In a somewhat similar transaction, ICICI Group-backed IT & ITES firm 3i Infotech sold its US-based Global Billing & Payments unit, comprising Regulus Group and J&B Software, to an affiliate of the private equity firm Cerberus Capital Management, L.P. for $137 million.