What Miami Beach and Bangalore have in common

No, it’s not the weather. Both cities have hot items for sale.

If you are vacationing in Miami Beach and participate in a conversation with at least two other people, most likely

a) one of these people is a real-estate broker

b) the topic is the skyrocketing prices of the waterfront properties

The prices are over the roof, and an apartment that you could have bought for $200K five years ago, costs $800K today. It’s the same apartment, without any visible improvements, just the price is a lot higher, because people are willing to pay this price.

Bangalore is an IT outsourcing capital of the world, and it also has a very hot item for sale: consulting companies, which most likely will be the hottest item of this Christmas season. But you have to start your early to secure delivery by December 25.

Yesterday, I’ve received my copy of the Information Week magazine which had an article about EDS offering $380 million to aquire a 52% stake in Mphasis, a Bangalore outsourcing firm. What I do not get is the following: Mphasis has 11 thousand employees and the last year’s revenues is $173.3 million. Let me pull up my calculator: each employee generates less than $16K a year in revenues. Not too impressive, is it? But Mphasis stakeholders did not OK’d the deal yet: they might ask for more money. Why not? It’s the right time and the right place to be.

I also work for a consulting company (but in the USA), which is A LOT smaller than Mphasis, but our revenues are higher. But as far as I know, buyers are not lining up in front of our headquarters with bags of cash. So why EDS is ready to pay this unreasonable amount of money for a clearly non-efficient business? They do it for the same reason why people buy apartments in Miami Beach: having a Bangalore mailing address with several thousands of developers in the building just makes you look big and important. Who cares that 80% of these people are not bread winners! Actually people who know do care. That’s why our company keeps growing leaps and bounds here in the USA, and I’m sure some day it’ll be acquired by some larger firm, but the price of this acquisition will be reasonable , and no one will just throw tons of cash at us.

I agree, business has to be driven by the market supply and demand. But at least do not tell us that outsourcing is dirt cheap and does your body good.

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