Hyderabad-based $4.4 million Virinchi Technologies [Get Quote] Limited, a provider of web-enabled enterprise-wide solutions, has entered into an agreement to acquire KSoft Systems Inc for $ 2.66 million in a cash-stock deal.

KSoft is a $3.7 million company that provides enterprise business solutions focussing on SAP implementation and business intelligence. With this acquisition, KSoft will become a wholly-owned subsidiary of Virinchi.

Addressing the media, Viswanath Kompella, chairman and managing director of Virinchi Technologies, said, "We will be paying $1.2 million in cash payable in three installments. The first installment will be worth $0.6 million and the remaining two of $0.3 million each will be after six and 18 months respectively. The preferential allotment of shares would be worth $1.46 million."

The stock portion is locked in for a period of one year and the later two cash tranches are performance-linked. KSoft is being acquired at 0.72 times its 2004 revenues.

While 55 per cent of the acquisition is being made through stock, 45 per cent is through cash. Virinchi will be, therefore, concluding the deal with 12.6 per cent dilution of its current equity capital.

The acquisition will be completed by the third quarter of 2005 and the acquisition price also includes real estate property owned by KSoft worth $ 0.25 million.

"We would like to have a year-on-year growth of 100 per cent. Therefore, while 25 per cent will be through the organic route, 75 per cent will be through the inorganic route. Our future acquisition targets will be US and European IT companies," Kompella added.

The company expects to end this year with total revenues of around Rs 33 crore (Rs 330 million), with around Rs 24 crore (Rs 240 million) being from Virinchi and Rs 9 crore (Rs 90 million) from KSoft.

Virinchi plans to shift some projects of KSoft to itself in a phased manner. While Virinchi has 175 employees, KSoft has 40. Apart from this, Virinchi plans to add another 50 employees by the end of this year.

"This acquisition will not only give us additional clients but also enhanced service lines, and we will be able to cross-sell Virinchi's products to KSoft's clients," Kompella said.