March 7, 2000
Tech Center
Mastech Plans to Split the Company
Into Several Firms, With Goal of IPOs
By TIMOTHY AEPPEL
Staff Reporter of THE WALL STREET JOURNAL
OAKDALE, Pa. -- Sunil Wadhwani and Ashok Trivedi built a thriving business around the notion of importing people, largely from their native India, to fix American computer systems. Their company, Mastech Corp., grew into a $470 million-a-year powerhouse and the partners are now quite rich.
But that business isn't good enough any more. So beginning Tuesday, the company is blowing itself up and creating nine separate operating companies to be eventually publicly traded -- each designed to deal with one aspect of Internet-related services. Mastech will rechristen itself iGate Capital, a holding company that will link the nine together.
Furthermore, Mastech is looking at its main non-Internet related business, the staffing operation it began with, which constitutes about 35% of its revenue. Mastech is considering a management-led buyout, a combination with another company or an outright sale of that business. For the moment, it will remain a unit of iGate.
"The Web revolution is driving e-services to the top of the value chain -- so that's where we have to be," says Mr. Wadhwani, the company's 47-year-old co-chairman and chief executive. One of the new companies will be devoted to Web-based marketing and another to Web integration.
Mastech is only the latest computer-services concern to attempt such a reincarnation. For instance, Ciber Inc. and Computer Horizons Inc. both recently announced moves aimed at creating businesses focused on the Internet. Analyst Steve Ashley, at Robert W. Baird & Co., says the underlying issue is valuation. Wall Street loves pure-play Internet services companies.
A Ferrari Among Chevys
Companies like Mastech have attempted to build up lucrative Internet services, both internally and through acquisitions. "But if you have a Ferrari in a fleet of Chevys, you still get a valuation based on the fleet of Chevys," says Mr. Ashley.
Messrs. Wadhwani and Trivedi have bought or developed five Internet-focused companies, including one called eJiva, which works on certain aspects of business-to-business e-commerce. Another four Web companies will be carved out of Mastech's existing operations. The goal is to ultimately spin all these companies off through initial public offerings.
"We'll make lots of people very rich," says Mr. Trivedi. Indeed, a major reason for the IPOs will be to help the new companies compete for talent in a tight job market by offering compensation packages heavy with stock options.
'There's High Anxiety'
Sitting in a conference room at the company's headquarters near Pittsburgh, carved out of a building that was once part of Westinghouse Electric Corp., Mr. Wadhwani says he expects the Internet-services market to continue growing rapidly. "There's high anxiety at the top management levels of big companies these days," he says. They are worried about the impact of online competitors and looking for consultants who can quickly and effectively bolster their positions in the market, he adds.
Mastech, which trades on the Nasdaq Stock Market, has a market capitalization of about $2.19 billion.
The businesses under the iGate umbrella will each have its own management and board. The holding company will have majority stakes in most of the companies, and iGate shareholders will have the ability to buy shares in the IPOs at favorable terms.
Write to Timothy Aeppel at timothy.aeppel@wsj.com1
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