Mastek acquires insurance-focused IT company in USA

Company News

Mumbai, July 16

Mastek, a leading IT solutions player with global operations providing new technology and IP-led enterprise solutions to insurance, government, and financial services organizations worldwide, today announced the acquisition of Vector Insurance Services LLC (Vector), a technology solutions provider and third party administrator that focuses on the North American life & annuity insurance industry. Under the terms of the agreement, Mastek’s wholly-owned US subsidiary MajescoMastek will hold 90% equity stake in Vector. The consideration for this acquisition will be paid partly in cash and partly by way of future cash earn outs.

Vector provides policy acquisition, administration, and processing solutions to customers in the North American life insurance industry. Among its customers are two of America's largest insurance carriers that have chosen Vector as their service provider of choice. The company had revenues of US$4.2 million in its financial year ended 31 December 2006. The company has 26 employees, with significant domain expertise in the insurance space. Mastek’s larger scale of operations and strong IP-led capabilities, combined with Vector’s robust client track record and presence in the US insurance space, is expected to enable significant leverage across multiple points in the value chain. Following this transaction, Vector will operate as VectorMastek.

Commenting on the acquisition, William McCarter, President of Mastek’s US operations said: “This acquisition reinforces our solutions-driven offerings in the high opportunity US insurance market, adding a SaaS capability to our existing competencies. Vector fits very well with our overall strategy to be a leader in providing end-to-end IT solutions within the insurance vertical. Our companies share many synergies in domain expertise, delivery capabilities, and processes that were desirable to us.”

Harold J. Apple, Vector CEO and Founder, said: “We are very excited about our future prospects with Mastek as our parent company. They have world-class capabilities and delivery centers, a global presence, and significant intellectual property. We believe that our existing policy administration offering will be enhanced by Elixir, Mastek’s SOA-based enterprise platform for life and annuity carriers. Our customers will also benefit from the technology skills and offshore delivery advantages that Mastek will bring as a result of this transaction.”

Rationale for the transaction

Vector comes with an attractive operating status and the acquisition is revenue and earnings accretive to Mastek. Going forward, this transaction is expected to noticeably strengthen the opportunity pipeline for Mastek in the Insurance vertical, where the company already has a strong customer base and has developed an intellectual property (Elixir™) and a growing market presence. This acquisition will enable Mastek to offer a more complete solution for insurance carriers including new business, underwriting, and policy administration processing and products by adding “software as a service” (SaaS) capabilities to its existing end-to-end enterprise software solution offerings. Analyst firm Gartner predicts that “by 2010, 30 percent of new software purchases will be delivered via an application utility or an SaaS model”. These offerings will be available through a combination of three different models: traditional software licensing, applications services, and critical process outsourcing.

SaaS is a recent software application delivery model where customers contract to use the software, with the provider responsible for maintenance, availability and upgrades.. From insurance companies’ perspective, this should enable them introduce new products, capabilities and business lines quicker because they will not have to match those initiatives with investments in a whole new IT infrastructure. Industry research group Gartner expects insurance companies to more aggressively consider SaaS starting in 2008. By providing SaaS to the insurance market, VectorMastek is creating a model that allows for outsourcing of critical activities, like managing an insurance company’s IT and business processing infrastructure, as a service.

Vector’s policy administration system is used by more than 30 life insurers in the United States, Canada and Japan and following this acquisition, MajescoMastek will gain access to a reference clientele that includes some of the leading names in the US insurance industry such as CIGNA Group Life, Manulife Financial, Harford Life, Nationwide Insurance, Nationwide Provident, and Transamerica Reinsurance.

This initiative is in line with Mastek’s three-pronged strategy to drive revenue and earnings expansion over the long term by enhancing SG&A productivity through a verticals approach, adding new partnerships and strategic accounts in focus verticals, and making well-considered acquisitions that complement its existing strengths in terms of skill-sets or customer base.

Details of the transaction

Mastek will be acquiring a 90% equity stake in Vector in an all-cash transaction for US$ 4.5 million payable at closing and a similar amount payable over the next 2 years as earnout based on business performance The acquisition is being funded through internal accruals.

Integration process to be completed by August 2007

The integration of VectorMastek with Mastek’s existing operations is expected to be completed in about 30 days, and its contribution will be reflected in Mastek’s consolidated performance this year onwards. Vector has built a loyal customer base in the region and will continue to serve its customers with enhanced abilities enabled by the acquisition. The existing management team of Vector will continue to look after the business, led by its founder Harold Apple who has extensive insurance sector experience and will report to William McCarter, President of MajescoMastek. Other managers and employees will also be retained and will continue to support Mastek in its objective to develop its insurance vertical business in North America.

Keeping in view VectorMastek’s service offerings, track record, and its outlook going forward, this acquisition will strengthen Mastek’s US operations, especially in the insurance vertical, and enable greater value creation for the company’s shareholders over the long-term.

For further information, please contact:

Sanjay Mudnaney

+91 22 2824-7745

sanjaym@mastek.com