Mastech Becomes iGate, Follows Path of CMGI, ICG
By Barbara Etzel
NEW YORK (Reuters) - In a move that mimics the business model of Web incubators such as CMGI Inc. and Internet Capital Group Inc., Mastech Corp. on Tuesday unveiled plans to transform itself from an information technology consultant into an Internet investment vehicle.
Mastech, under its new moniker of iGate Capital Corp. (NasdaqNM:IGTE - news), will become a holding company with nine majority-owned units with plans to double that number and spin off about six companies by year end.
Shares of iGate jumped as high as 77 1/8 in trade on the Nasdaq and were up 14 4/16, or more than 33 percent, at 57 3/16.
``It is good for shareholders from the standpoint that the company is going to take its lower margin staffing business and figure out alternatives for it,' Credit Suisse First Boston analyst Wayne Segal said.
The holding company structure gives iGate the flexibility to get into growing e-services markets, which is expected to grow to nearly $80 billion by 2003, up from $13 billion in 1999.
``The whole purpose of this reorganization is to give our organization focus and speed,' Sunil Wadhwani, chief executive of iGate Capital, said in an interview.
The Pittsburgh-based iGate also said it plans to double the number of its operating units by the end of the year by starting or acquiring existing companies, focusing only on e-services businesses that promise high growth opportunities, such as wireless and high-speed Internet services.
To help reach that goal, iGate will set up a $75 million venture fund, iGATE Ventures, which will be funded entirely by iGate. Because that fund likely will be depleted sometime this year, iGate is planning another $300 million fund, which it expects will be in place by the end of the year, Wadhwani said.
Of the $300 million fund, iGate will contribute about $100 million with institutional investors contributing the rest.
Besides building companies iGate will spin off public companies. It currently plans to take two businesses public during the next three months, with plans to take another three to four public in the second half of the year, Wadhwani said.
While iGate's holding company structure will resemble incubator companies CMGI (NasdaqNM:CMGI - news) and ICG (NasdaqNM:ICGE - news), the key difference is that will focus only on companies in the e-service area, Wadhwani said.
Shareholders will notice little change after today's change into iGate, other than a new ticker symbol. Shareholders who currently own Mastech shares will automatically own the same number of shares in iGate, Wadhwani said.
IGate said there will be no charges or financial transactions associated with the formation of iGate. Segal said he was not immediately changing his earnings estimates, but expected that future earnings would be negatively impacted as the company invests in other companies.
IGate had revenues of $470 million in 1999.
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