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Cigniti Planning Further Acquisitions to Support Target to Reach $100m Revenue by FY 2016

Cigniti Technologies is looking to achieve ~$100m in revenues by FY 2016 (the year ending March 31, 2016. The milestone targets on this three-year journey are ~$50m in FY 2014 and $70m in FY 2015. To give a sense of the scale of this ambition, Cigniti’s FY 2013 revenues were ~$27m.

Headcount growth targets are from the current 800 to ~1,200 by end FY 2014, and ~2,500 by fiscal 2016.

Organic growth has a role to play. The company is expecting organic growth to contribute 30% to 40% of growth in the FY 2014-2016 period. This strong organic growth is to come from:

  • Service offering expansion, e.g. mobile application and device testing, ERP testing and test advisory services
  • Geographical client expansion, e.g. to Canada (through the opening of a new office and hiring of a sales force) and Australia
  • Higher prices, due to its higher visibility as a software testing pure-play
  • Client account penetration through cross selling of additional services and recurring activities e.g. performance testing.

Acquisitions will also play a critical role. Cigniti is planning to close an acquisition within the next four months (by end FY 2014), targeting companies with revenues in the $9m to $15m range. Criteria include: companies that can support some of the following ambitions:

  • Geographical expansion: presence in the U.K. or in APAC, including Australia. Currently, Cigniti derives 90% of its revenues from North America, especially the U.S. The company plans in the next two years to rebalance its revenue mix to 70% North America, 30% Rest of world
  • Service portfolio expansion, e.g. security testing; ERP testing; or domain expertise in banking and financial services
  • IP, which Cigniti considers will be its number one differentiator factor looking ahead. The company is building licensed IPs, such as those brought by the 2013-acquired Gallop. Yet, most of new IPs are to be sold by Cigniti as part of its service and not as licensed products.

Cigniti Technologies has recently gained experience in acquisitions, acquiring U.S. -based Cigniti Inc. in 2012 and Gallop Solutions in 2013.

Cigniti Inc. was largely a U.S. onshore operation and Cigniti Technologies has worked initially on stabilizing the operations. The company has focused on moving its offshore ratio from 25% to 75%, largely though cross-selling of India-delivered services, while maintaining onshore revenues. As a result, Cigniti now has 500 personnel in Hyderabad and 200 onshore, of which 40 in its Texas delivery factory.

Looking ahead, Cigniti is:

  • Open to setting up onshore delivery centers, tentatively looking at Canada though hiring test advisory services, program management and test project management expertise. The company is also opened to managed testing service contracts involving personnel transfer
  • Bid for contracts involving larger personnel transfer. The company’s experience has been in the past under 10 test professional transferred. Cigniti now aspires to contract with TCV of $100m and is therefore ready for large personnel transfers.

Cigniti has emerged as the most aggressive software testing pure play based in India, through hiring of several former high-level executives from AppLabs, acquisitions, service offering expansion, and overall execution. The company is relying on growing its wallet share with existing clients as well as expanding its client base in the U.S. initially and now in Canada, the U.K. and Australia. The client base expansion is to require acquisitions: it is therefore going to be interesting to see how Cigniti finances its acquisition, while keeping financial ratios on track.

The high growth of Cigniti is good news: the software industry is a very labor-intensive industry with investment needed to support personnel growth, retention and training; in tools and IP; and the development of service portfolio. Clients increasingly need testing vendors, especially those with multi-year managed testing contract aspirations to have scale and deep pockets.

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