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Business News/ Companies / Start-ups/  Mu Sigma revenue set to top $180 million this year

Bengaluru: After a complex restructuring that was necessitated by the divorce of the company’s founders, Dhiraj Rajaram, back as chief executive officer (CEO) of Mu Sigma Inc., says the company is on track to expanding its revenue, which declined in 2016.

Revenue at the data analytics start-up fell last year on account of a loss in business from clients, including some of its largest customers such as Wal-Mart Stores Inc., Microsoft Corp., AT&T Inc. and MetLife Inc, according to company documents seen by Mint. The company reported $165 million in revenue for the year ended December 2016, down from $184 million in 2015, according to the documents.

In an interview, Rajaram, 42, confirmed that Mu Sigma’s revenue declined last year but said the company was on track to exceeding $180 million in revenue in 2017. Mu Sigma’s chief financial officer Subba Rao Telidevara said the company’s revenue grew 10% in the six months ended 30 June.

Mu Sigma is trying to get past a troublesome period in which the company’s business had taken a hit amid the divorce of its founders and a string of senior management departures. The blip is noticeable particularly because it came after more than a decade of expansion that drove up the company’s valuation to a peak of $1.5 billion.

Last year, co-founder and former CEO Ambiga Subramanian divorced Rajaram and stepped down as CEO in September 2016. She also sold most of her shares. The exit of Subramanian was facilitated by a complex transaction that helped Rajaram increase his ownership to 52%, ensuring he retains majority control of the company. The transaction also valued Mu Sigma at less than $900 million, though this may not be a fair estimate of the company’s real worth given that it was done to get it out of a sticky situation involving its founders.

In May, Mu Sigma borrowed $350 million from four banks, Credit Suisse Group AG, Standard Chartered Plc., Deutsche Bank AG and Barclays Plc., to finance a complex share buyback deal. The Economic Times first reported on the loan.

The loan was used partly to repurchase a majority of shares held by Subramanian, who got about $170 million for selling her 20% stake back to the company, according to documents reviewed by Mint. Rajaram agreed to buy back Subramanian’s remaining 4% shares at a later date, the documents show.

Credit card firm Mastercard Inc., which had invested about $40 million in 2013 in a deal that had then valued Mu Sigma at $1.5 billion, sold its entire 2.3% stake back to the firm, according to the documents. Mastercard earned up to $18 million in the deal, taking a haircut of more than $22 million.

Two other investors, General Atlantic Llc and Sequoia Capital, also sold some shares back to the company. General Atlantic and Sequoia earned $90 million and $60 million, respectively, the documents show.

Rajaram, who owned about 25% share in the company, did not participate in the buyback but saw his holding increase to 52%, while General Atlantic and Sequoia, saw their ownership increase marginally, to 25% and 17%, according to documents. The remaining 6% shares are held by five individual investors or angel investors.

The deal valued Mu Sigma at less than $900 million. Mint couldn’t ascertain the exact reasons behind the drop in valuation but it’s clear that the buyback was done primarily to provide an exit to Subramanian.

Rajaram confirmed the new shareholding structure but declined to comment on the valuation. “For Mastercard, this became strategic. They had exclusivity with us for some time where we could not work with other payment companies. That exclusivity is gone. So it wasn’t strategic for them anymore," he said.

Subramanian and spokespersons at Mastercard and Sequoia did not respond to emails seeking comment. Spokespersons at General Atlantic, Wal-Mart and MetLife declined to comment.

Founded in 2004 by Rajaram, a former Booz Allen Hamilton Inc. consultant, Mu Sigma has a workforce of more than 3,000 employees who help clients make sense of data to help them run their businesses better. Rajaram’s ambitious vision and ability to hire smart leaders helped the Illinois-based company quickly become India’s largest software product start-up.

He did it using very little cash. Rajaram said Mu Sigma has so far raised less than $10 million of primary capital from investors; the rest of the investor capital—more than $200 million—has simply gone from one investor to another, he said. Mu Sigma is also one of the very few profitable Indian start-ups. In an ecosystem where start-ups keep requiring fresh doses of capital just to keep their businesses running, its healthy profit margin is enviable.

Indeed, until the turbulence of the past 18 months, the capital efficiency, consistently strong sales growth and ever-expanding profits made it seem like Mu Sigma was unstoppable.

Apart from the decline in revenue last year, Mu Sigma has also been hit by the departure of six senior executives since March. Last month, Deepinder S Dhingra, head of products and design, put in his papers. Dhingra, who joined the company in 2009, five years after Mu Sigma was founded, was one of Rajaram’s trusted lieutenants. In July, Shelly Singh, head of sales, and Mike Feldner, who managed the company’s business in the Midwest and South-East regions of US, resigned. In June, Mukund Raghunath, a senior vice- president who oversaw the company’s largest client, Wal-Mart Stores, and was also the company’s first employee in the US, put in his papers. In May, Ketan Awalegaonkar, executive vice-president, resigned. Senior departures include Nat Iyer, global head, strategic hiring.

Rajaram dismissed any suggestion of employees losing confidence in his leadership and said the company had no plans of hiring an external CEO.

“Are people losing faith in me? One thing you have to look into is that all these people have been around for 7-8 years, and all these years I have been CEO. So if they did not have faith, they would have left a long time back. That is not the issue," Rajaram said.

“Everybody is important… They have contributed very well to this company. And we respect them. And we want to celebrate their success going forward. All these people (who have quit) have got better opportunities… But the company is very resilient," he added.

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Varun Sood
Varun Sood is a business journalist writing on corporate affairs for the last fifteen years. He also writes a weekly newsletter, TWICH+ on the largest technology services companies. He is based in Bangalore. Varun's first book, Azim Premji: The Man Beyond the Billions, was brought out by HarperCollins in October 2020.
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Updated: 15 Sep 2017, 05:05 AM IST
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