Synapsis' post-Endesa roadmap

Friday, March 18, 2011

Late last year, Spanish power group Endesa and its subsidiary Enersis completed the long-awaited sale of several non-core assets, including Chilean IT service provider Synapsis. The tech company, which has received accolades from consultancies such as Frost & Sullivan, has since become part of US private equity firm Riverwood Capital.

BNamericas caught up with Synapsis' general manager, Leonardo Covalschi, who discussed the future of the company after the acquisition, why Riverwood Capital's buy-out proposal fit the bill and where the company sees business opportunities in 2011.

BNamericas: What are the first steps that Synapsis will take toward increasing business after being acquired by Riverwood Capital?

Covalschi: The first step involves increasing our headcount in all countries. As of the end of February, we've already seen a 20% increase in our business. We currently have more than 320 clients in the region.

We're reinforcing our team and also making investments in our data centers in Chile and Brazil to expand their capacity.

BNamericas: To expand the capacity of…

Covalschi: Their overall capacity, electricity capacity and overall size of the data centers in square meters so that we can significantly increase the number of servers stored in those data centers.

BNamericas: How much is Synapsis investing in those data centers?

Covalschi: About US$5mn for the expansion of those data centers.

BNamericas: Is the Chile data center capable of resisting a significant earthquake?

Covalschi: We came out of the earthquake last year without any interruption in service. In our data center, we generated our own electricity for 36 hours. One of our largest clients is [the Chilean portal for online pension fund and health insurance payments] Previred, and we had a transaction with them on the Saturday morning when the earthquake hit.

The data center held up during the earthquake, and after the earthquake hit, we incorporated new electricity generation equipment, two new UPS's and also new automatic switching to continue improving the infrastructure. Things are going well, and here in Chile we have grown 23% in comparison to the year prior.

BNamericas: Is Synapsis evaluating the construction of new data centers?

Covalschi: There are several possibilities. We're not ruling out the possibility of constructing another one. We could also do things according to a model of renting or leasing. But we're definitely considering the expansion of our data center capabilities in all of Latin America.

BNamericas: You mentioned that Synapsis is expanding headcount. In which areas are you hiring?

Covalschi: We are increasing our outsourcing and operations team, marketing and commercial.

BNamericas: How many employees does Synapsis have in the region today?

Covalschi: Today, we have about 1,300 workers. By the end of the year, we expect to have 1,500.

BNamericas: Will there be any expansion in Synapsis' offering now that the Riverwood Capital deal has been completed?

Covalschi: Yes, there will be both a widening and a deepening of our offering. Security represents an area where we are investing a significant amount, and that includes managed security. We're also investing a lot in energy efficiency solutions. We are launching a system that monitors lighting systems, whereby we manage the lighting voltage from a remote center.

BNamericas: Would the solution be geared toward residential end users?

Covalschi: No, it will be for retailers and municipal governments.

BNamericas: Does Synapsis already have clients for that solution?

Covalschi: No, but we're very interested in applying technology to smart grids.

BNamericas: What about energy efficiency in data centers?

Covalschi: We're making investments toward data centers so that they can become greener and have better energy efficiency.

BNamericas: And how strong is demand for managed security services in Chile and other parts of Latin America?

Covalschi: Managed security is showing the fastest growth. Banks and other institutions are investing more and more in IT security because companies are becoming increasingly digital. They need environments that are more secure and better administered. It's one of the highest growth segments both in Chile and the rest of Latin America.

BNamericas: Is demand only coming from banks?

Covalschi: No, from all companies. Banks and telecommunications companies are the ones that always lead in terms of adopting these types of technologies, but afterward come retail, utilities, government, oil and gas and mining, which also show high demand.

BNamericas: Synapsis does a lot of work with SAP solutions. Are there plans to include services based on other software providers, such as Oracle?

Covalschi: We aren't ruling it out. Today, we are a SAP business partner. We're a hosting partner for data center services and a service partner for project implementations. Now, we are working to receive cloud computing partner certification, which will allow us to provide services with SAP applications in a cloud computing architecture.

BNamericas: But Synapsis is also doing work with Oracle, right?

Covalschi: Yes, with Oracle technologies.

BNamericas: Can you provide some examples of the projects that you do with Oracle?

Covalschi: Projects related to databases. In Latin America, we have several projects that involve Hyperion, as well as implementing business intelligence. We also do middleware and transaction management.

BNamericas: Does Oracle account for a significant chunk of Synapsis' revenues?

Covalschi: No, but we can't rule out the possibility of it growing in the future.

BNamericas: Is Synapsis considering geographic expansion in its operations?

Covalschi: No, we want to strengthen our presence in the countries where we already have presence. You could consider geographic expansion in the sense that we are going to be opening up more offices in Brazil, but we won't go to other countries. In Brazil, we're in Rio de Janeiro and Niterói, Fortaleza in the state of Ceará and in São Paulo.

Also, Panama represents our newest subsidiary, and we will surely increase our operations there.

BNamericas: Where will you open up offices in Brazil this year?

Covalschi: In Belo Horizonte and Porto Alegre.

BNamericas: Will there be any change in Synapsis' participation in the Chilean IT industry promotion initiative Chile-IT?

Covalschi: We will continue to participate in that initiative. We expect to leverage Riverwood Capital to strengthen our presence in the US.

BNamericas: Why was Riverwood Capital's bid the best for Synapsis?

Covalschi: It was important to gain access to their capital, but also to their experience in the IT market. It was very attractive for us. Riverwood Capital's proposal was to make us grow, to keep investing in the company, to increase our presence where we are already and to expand our offering. I'd say the key word here is growth.

BNamericas: Were there any layoffs in Synapsis due to the acquisition?

Covalschi: There are always people that arrive, and there are always people that go. What we did last year was a carve-out process, whereby a portion of the workers continued to work in Endesa. The process was complex. There weren't any significant firings. But there are always layoffs.

BNamericas: Aside from Riverwood Capital, how many other companies made bids on Synapsis?

Covalschi: That's confidential information. There were several companies that participated in the process. We received advising from Banco Santander Investment Banking and also help from Ernst & Young in Spain. Riverwood Capital also had its financial advisers.

BNamericas: But, I know that Sonda also participated in the process.

Covalschi: Yes, but I'd prefer not to talk about it. We received interest from companies on the Chilean and Latin American level, and also from companies in other global regions.

BNamericas: Why was Riverwood Capital's bid better than Sonda's?

Covalschi: We chose the best offer out of all of them, but not only in the economic aspect. There were also aspects such as the growth of the company, the idea of maintaining the leadership intact and also the participation that we will have in the company. There were a series of areas that made the bid attractive for Synapsis.

BNamericas: Where is Synapsis seeing the most significant business opportunities in 2011?

Covalschi: We will maintain the same focus areas. We work in several vertical markets, including utilities, government, oil and gas, mining and healthcare. We target those vertical markets with infrastructure outsourcing, our SAP line, technical systems and also business applications.

BNamericas: Which have the biggest growth potential in 2011?

Covalschi: There are two: infrastructure outsourcing and SAP outsourcing, as well as energy efficiency.

BNamericas: How important will government business be for Synapsis this year?

Covalschi: It represents about 10-15% of our business. We have more government business in Colombia and in Chile.

BNamericas: Can you provide some examples of government tenders in those countries where Synapsis is competing?

Covalschi: We have participated in central bank tenders in Chile, and will participate in health ministry tenders, as well as number portability. Those are examples of tenders where we have participated, and are also interested in participating. Meanwhile, in Colombia, we're participating in the country's digital agenda. We are also in mining in Colombia.

BNamericas: What are Synapsis' sales expectations for 2011?

Covalschi: We expect to reach US$110mn in sales.

BNamericas: How does that compare with last year?

Covalschi: Because we went through a carve out with Endesa, there was business that we had through Endesa that was reduced. In all of our business that is not related to Endesa, we're growing at 20%. But, if we compare absolute amounts, we're going to go from US$130mn to US$110mn due to the carve out.

BNamericas: Is there anything else that you would like to say about Synapsis' plans after the Riverwood Capital acquisition?

Covalschi: We aren't ruling out the possibility of acquisitions and inorganic growth. We're analyzing options in Latin America.

About the company

Headquartered in Santiago, Chile, Synapsis provides services such as electronics systems and components, software, IT services and outsourcing. The company has more than 340 clients across Chile, Colombia, Brazil, Argentina, Peru, Panama and the US.