Chennai: It is the turn of the two companies belonging to the TeNet group, promoted by IIT-Madras lecturers and alumni, to be bitten by the mergers and acquisitions (M&A) bug, a trend that is seen in the domestic telecom field.

In a silent move, the group's flagship company Midas Communication Technologies Private Limited (turnover $50 million) has acquired its sister outfit Banyan Networks Limited (turnover $5million). The process of merging Banyan Networks with Midas Communication is already on.

If their business plan proceeds without any hitch, the combined entity will be around Rs.550 crore by the end of this year.

However, Midas Communication chief executive officer Shirish B Purohit likes to downplay the latest development. ''It had to happen one day and it has happened now,'' he says and goes on to add, ''Essentially both the companies form part of the same family targeting the same set of customers.''

But the difference lies in the domain they operate in though their products are complementary. Midas Communication, the developer of the corDECT wireless in the local loop (WLL) technology, operates in the wireless telecom domain, while Banyan Networks operates in the area of digital subscriber line (DSL) technology and hardware like routers and remote access server (RAS). It is Banyan Networks' DSL technology - Direct Internet Access System (DIAS) - that is used by the telecom giant Bharat Sanchar Nigam Limited (BSNL) to offer broadband connectivity to its subscribers.

All these years Midas Communication had been largely focused on the export markets for its corDECT WLL technology while Banyan Networks has been targeting the domestic broadband segment. Remarks Banyan Networks' chief operating officer K V Nair, "Both the companies are competing against the well entrenched multinational companies (MNC). It is better to combine the resources and derive the benefits of synergies."

With Banyan Networks products like remote access server (RAS) and variants of DIAS on the anvil that will be compatible with corDECT WLL, the merger will make it easier for the former to piggyback on Midas Communications abroad. ''The upgraded version of corDECT WLL is suited for urban applications. With Banyan Networks DIAS our broadband offering will be very strong,'' adds Purohit.

The other reason for the merger move could be to provide an exit route to venture capitalists like Intel, IL&FS, Sycamore Ventures and Ray Stata, chairman, Analog Devices Inc., USA, who have funded Banyan Networks' Rs.2 crore equity at a premium.

The four investors together hold 53 per cent, 33 per cent is held by an employee trust and 14 per cent by well wishers of the TeNet group. In 1999, the company got an equity infusion from Intel, Sycamore Ventures and IL&FS. The angel investor, Stata, converted a part of his interest-free loan into equity. In 2001, the company raised $17.5 million from the stakeholders, barring Intel, when the company was valued at Rs. 20 crore.

However, Purohit does not agree. ''Nobody is exiting the group. All the investors will stand invested in Midas Communications. I am not in a position to tell the swap ratio.'' As per plans, Midas Communications will come out with an initial public offer only two years later.

On the human resources front, Banyan Networks has around 150 employees and Midas Communication has around 325. According to Purohit, Midas Communications plans to add another 200 people.

Looking at other telcos

Meanwhile, Banyan Networks with different DIAS flavours, is looking at other telcos like Tata Teleservices, Bharti and VSNL. "We expect new clients to come this year," hopes Nair.

According to Nair, the company is expecting a boost to DIAS sale with the recent guideline issued by the Telecom Regulatory Authority of India (TRAI) on expanding the broadband connectivity. The guideline is expected to trigger telecom service providers to seriously look at the broadband Internet access segment. TRAI supports the unbundling of the last mile copper lines owned by BSNL and Mahanagar Telephone Nigam Limited (MTNL) so that third party broadband service providers can use it and boost broadband usage in India.

At a time when the world is talking about data highway, the two companies are still talking about voice traffic. The TRAI move may force the two telecom players to offer the same on their own, as it happened in the dial up Internet access business. Both the moves augur well for Banyan Networks, as it is already present in the BSNL network.

Presently, DIAS is present in over 450 BSNL exchanges located in over 90 cities. As BSNL is not promoting the service aggressively, sales largely happen through word of mouth. ''It is a matter of time before the demand burst happens,'' Nair remarks confidently.

Agreeing that competition is severe in this space too, Purohit says that the TeNet group companies developed their technologies and products taking into account the Indian environment in which imported technologies may not be efficient.

Broadband apart, Banyan Networks is also looking at other products like routers. It is also the only company to have the type approval from the government. According to Nair, the company is in the process of bringing out a couple of more models.

While branding and marketing the hardware is on, Banyan Networks recently began the hunt for contract manufacturing activity. The company has already bagged a big contract to make routers for an MNC.

"We are looking at a revenue of Rs.20 crore from routers and the turnover target for this year is Rs.100 crore," says Nair. Last year the company earned around Rs. 6 crore on 800 routers and Rs.5 crore from RAS.

Midas Communication on its part is training its guns on the SAARC region where the telecom market is fast developing. The company has secured a $1 million order from Bhutan. ''The Russian and CIS countries are the other markets we are seriously looking at,'' adds Purohit. He is satisfied with the order book position of 3 million lines and 1.5 million subscriber terminals.

The company closed last year with a turnover of around Rs.240 crore and the current year target is Rs.450 crore.