Sparxent Braves The Russian Frontier
Despite a reluctance among many outside investors to engage in M&A in Russia, the IT company has cautiously acquired Moscow-based Arbyte Group.
June 17, 2009
As investors continue to back away from pouring new investment capital into Russia, one technology firm has taken a decidedly contrarian approach. Sparxent, a mid-market IT and business solutions company based in Salt Lake City, Utah, acquired Moscow-based Arbyte Group. Terms of the transaction were not disclosed.
Since Sparxent was founded in August, it has purchased several consulting, software and hardware companies. Still, the technology company’s Russian transaction is unique in that investors into Russia have typically been limited to investment firms that have already made deep inroads into Russia or are based in the region, such as Delta Private Equity Partners or Baring Vostok Capital Partners.
In speaking with MergersUnleashed, co-founder Dave Taylor said Sparxent “did a lot more financial due diligence than we would typically.” The additional caution was not a result of Arbyte’s financials, he said, but “due to its location.”
The transaction is the third acquisition that the company agreed to since August. In May, Sparxent said it would purchase XAware, a data integration company. The IT buyer said in August that it would buy NetworkD Corporation.
Taylor said Arbyte previously consisted of four separate entities which were combined to form a single holding company. Sparxent then established an additional Dutch holding company which owns the Russian entity. “We sort of went overboard and did extensive due diligence,” Taylor said.
Several dealmakers have expressed reluctance to enter into high technology deals in the region, as Russian “strategic interests,” such as oil, metals and mining, and technology are largely seen as off-limits to foreign investors.
In speaking with MergersUnleashed earlier this year, Marc van der Plas, head of corporate finance of KPMG in Russia and the CIS, said international companies “will never be able to acquire a majority share in these industries, for the simple reason that Russia does not want to give up its crown jewel.”
In February, Russian Prime Minister Vladimir Putin reportedly responded to a question from Dell founder Michael Dell at the World Economic Forum in Davos about how U.S. companies can help Russia to develop its IT infrastructure by saying, “We don't need help. We are not invalids. We don't have limited mental capacity.”
In April 2008, the Russian Parliament, or State Duma, defined the nation’s strategic sectors. In speaking with MergersUnleashed in February, Patricia Cloherty, chairman and chief executive officer of Delta Private Equity Partners said her firm has focused exclusively on those industries that Duma defined as non-strategic. “So stay away,” she said of the sectors defined by Duma as strategic. “Why flirt with something if you don’t have to?”
Despite the risk, Taylor said the decision to expand into Russia was “very simple.” Noting Russia’s expanding global economy, he said, “Eventually you have to end up in Russia.”
Sparxent appointed Enrico Pesatori, the former president of Tandem Computing and senior vice president at Compaq Computers, to the Sparxent board of directors in November 2008. A month earlier, the company named former Salesforce.com chief financial officer Andrew Hyde to the same position.
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