Sequoia-backed testing firm AppLabs considering strategic sale

MNC and Indian suitors may be interested in the Hyderabad-based testing firm, which may attract a valuation of $150mn.

Sequoia Capital-backed AppLabs Technologies Pvt Ltd, a privately-held software services firm focused on the testing space, is considering a strategic sale paving a way for a full or partial exit for the five-year-old investor.

The company had earlier looked at initial public offer (IPO) route as an option, however, it seems to have abandoned the IPO plans and is looking at a trade sale instead.

Sashi Reddi, the founder of AppLabs, holds substantial stake in the business while Sequoia Capital is a significant minority shareholder. Sandeep Singhal, managing director of Sequoia Capital India, holds a board seat in the company.

Sources familiar with the development told VCCircle that AppLabs was actively pursuing a plan to attract new buyers, a move that may also result in stake divestment by the investors and the founder.

AppLabs is believed to have mandated a global investment banking firm to carry out the exercise. AppLabs, it is learnt, initiated the strategic sale move a year back

but it was shelved on account of market conditions. In effect, that process has been revived now, sources said.

It is understood that AppLabs has received good interest from both domestic and MNC technology companies who are looking at a sizeable opportunity in the lucrative testing services segment.

Research firm Gartner has reportedly pegged the opportunity for Indian offshore testing companies at around $8 billion at the end of 2008.

Now, the company, which is reported to be close to the $100-million revenue mark, is

looking at a valuation of $150 million (or 1.5 times the top line), the sources added.

E-mails sent to both Sashi Reddi and Sandeep Singhal last week, seeking comments on strategic sale plans, elicited no response at the time of publishing this story.

Sequoia (then WestBridge Capital) first invested $7 million in 2004 in AppLabs followed by a subsequent round of $10 million in 2006. Founded in 2001 by Sashi Reddi, AppLabs claims to be the world’s largest software testing company with a head count of over 2,000 employees across US, UK and India.

AppLabs provides testing services in a range of areas such as performance, ERP, security, certification, test automation and managed testing.

AppLabs has also followed an inorganic growth path to add to scale, competencies and customers. In 2005, it acquired KeyLabs, a software and hardware testing company, followed by a $37-million purchase of UK-based testing consultancy firm IS Integration in 2006.

Interestingly, serial entrepreneur Sashi Reddi is also the founder of a game development company FX Labs, which recently released the Ghajini game, after the Aamir Khan Bollywood flick.

Sashi Reddi’s hands are quite full, it would appear, as he is actively engaged in running two companies in niche and fast-growing outsourcing spaces. Is that triggering a deal at AppLabs? That is the question some are beginning to ask.

According to Sashi Reddi’s profile in the company website, he started two other companies prior to AppLabs. EZPower Systems, which was a developer of products for building large web applications, was acquired by DocuCorp and then eventually by Oracle. Subsequently, he founded iCoop, a group purchasing dotcom company which went bust.

-- Copyright 2008 VCCircle.com. All rights reserved.

This content/article is provided by Mosaic Media Ventures Private Limited and not by Reuters. All rights, including copyright, in this content/article provided by VCCircle.com are owned or controlled by Mosaic Media Ventures Private Limited. The content may not be copied, broadcast, downloaded and stored (in any medium), transmitted, adapted or changed in any way whatsoever without the prior written permission of Mosaic Media Ventures Private Limited.