Zensar Acquires DigiSpace

Zensar is a technology services company, with 8,000+ associates and footprint in 29 global
locations. It has been recognized for its exceptional service capabilities and industry-
leading solutions, and has won prestigious awards in areas such as R&D, people practices,
and sustainability initiatives.

It is a part of the much heralded RPG group, and currently is a technology partner of choice,
backed by a strong track record of innovation and credible investment in digital solutions.

Zensar in the past has been a traditional IT services firm with a business model similar to
the big Indian IT firms. Zensars strength has always been its agility, and its ability to meet
customer expectations at any cost. With a new CEO on-board, Zensar is transforming into
a digital solutions provider, rather than remain a traditional technology services company.
In order to achieve this vision, he believes that inorganic growth is as important as an
organic one.

Most acquisitions fail because organizations lack a proper integration strategy. Even if they
have an integration strategy in place, they fail to execute it effectively. Majority of these
failures can be attributed to people related issues in an acquisition scenario. As a result,
Zensars HR department has created an HR - M&A Framework that covers majority of the
phases, from Due-Diligence to Post-Integration. The framework provides a structured
approach to the team working on integration and smoothens the entire journey from a HR
standpoint.

Sunil Khandelwal was hired as the HR M&A lead and was given a mandate to bring about
a positive change in Zensars integration approach. You are part of his team, having joined
Zensar a year back from a prestigious academic institution. You are currently playing a key
role in the completion of the HR M&A Framework. While the work was in progress, Zensar
made a decision to acquire a small Belgium company, DigiSpace, in the digital domain for
financial payment gateways. Due Diligence on the HR front was done using the tools and
templates suggested your team and the results pointed to a few areas of concern, which
need to be addressed for the successful integration of the company.

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About DigiSpace

Company Overview

DigiSpace is a leading player in the financial payments space in Europe. It was found in
2009 in Belgium by Andrew & Lisa Redberg. DigiSpace deals in advanced technology for
financial transactions.
Today, DigiSpace has 200+ employees with operations in Belgium, France, Switzerland, and
Germany. Its client pool is limited, but each gives substantial revenue to DigiSpace.
Customers are mostly national and regional banks from Europe and the US. They are also
beginning to expand to India, China, and Singapore. 2016 revenues are $19 million with a
24.6% EBITDA margin.

Products Overview

DigiSpace has a broad suite of automated financial payment products. Its flagship product
is The Smart Gateway, a sophisticated financial management system with widespread
commercial and consumer applications. There is an ongoing demand for The Smart
Gateway in developed markets and sales is expected to grow substantially in these markets
for the next few years. DigiSpace products are viewed as high quality and are priced as a
premium product.
Demand for automated financial management products is expected to grow strongly in
most emerging markets. It is understood that success in emerging markets will require a
modestly priced, innovative product with standard functionality. To that end, DigiSpace
started working on an innovative SMS banking application and a beta version of this
product is in its final stages. The product could be sold to consumers through banks in
developed as well as emerging markets.

Industry Trends

Digital financial payments market is expanding at a slower pace in developed markets, but
a higher demand is expected in emerging markets for a cheaper and more functional form
of personal electronic banking. Asia-Pacific is now the largest market with 41% global
share. North America accounts for 29% and Western Europe for approximately 21% of pie.
The global demand for personal phone banking applications is estimated to grow at 15%-
20% per year and will reach 2.1 billion customers by 2020. Demand in the emerging
markets is expected to grow at twice the rate of the established markets (North America
and Western Europe).

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Transaction Structure

DigiSpace intends to sell 100% of its interest in the stock (including all assets, liabilities,
and patent rights). Its products and patent rights are part of the assets. DigiSpace will keep
its focus on creating innovative phone banking applications in future. The future strategy
is in sync with owners passion for product research and innovation. DigiSpace has already
entered into an exclusive agreement with Zensar post its due diligence. Announcement is
due in 30 days from todays date, and post that the integration of processes and system will
commence. According to the new mandate by Zensars CEO, the entire integration of
DigiSpace has to be completed within 90 days from the date of announcement. DigiSpace
is entirely owned by Andrew and Lisa Redberg. Overall deal is finalized for $48 million,
out of which $12 Million is to be paid upfront and the remaining amount will be paid in
three equal installments to owners over the period of next three years as lock-in period.

Key Reasons behind the Acquisition of DigiSpace

The DigiSpace transaction has these key favorable investment considerations:

High barriers to market entry - Significant capital is required to enter the Financial
Payment Digital solution European market. There are only two other competitors of similar
size and scale: Zimbrex Inc. and InterFin Corp, both have invested heavily in growing its
R&D arm. There is strong competition between the three organizations for engineering
talent.

Significant market leadership position -- DigiSpace has 42% of the global market
share. Many customers are in the initial stages of long-term (7 10 years) service contracts.

Well established customer relationships -- The DIGISPACE customer base is very

loyal. Customer churn is 5% against an industry average of 12%.

Increased consumer demand for banking Products -- Global financial institutions

are seeing a significant shift away from more costly traditional transactions toward
customer self-service through web-enabled banking applications and a rapidly increasing
market for phone banking.

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Organization Structure Zensar

Raj Krishnan, CEO

Vikas Gupta, Ankita Ranjan, Mark Denzel,

Peter Wood, CFO
COO CHRO Head, Digital Business

Rakesh Mahajan, Ayesha Agarwal,

HR Head, Digital Business Finance Head, Digital Business

Organization Structure DigiSpace

Andrew Redberg Lisa Redberg

Ryan WillsWorth Cristina James, Jeffery Roth, William Beckley,

Finance Head Chief Technology Officer Operations Head HR Head

Structure Post Acquisition:

Andrew will be reporting to Mark Denzel, Head of Zensars Digital Business. He will be
responsible for identifying more opportunities in the Digital domain along with handling
the current Digi Spaces Technology portfolio. Cristina James will still be reporting to
Andrew. Ryan WillsWorth, will report to Ayesha Agarwal, who is the current Finance
Head for Zensars Digital Business. Lisa Redberg will be handling the end to end operations
portfolio for DigiSpace and will report to Vikas Gupta, COO of Zensar. William Beckley
will be in charge of HR at DigiSpace and will report to Rakesh Mahajan, HR head of Zensar
s Digital Business. Jeffery Roth will still report to the Co-founder Lisa Redberg and will
look after the day to day operations of DigiSpace.

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Other Information:

Zensar
Zensars total rewards program has been developed to support a performance culture.
Global customer, people, financial, and process goals are established at the corporate level
and aligned with the respective geographies. From the geography leadership,
responsibilities are passed down through operational/functional areas, ultimately reaching
individual employees. An automated system is used to capture performance feedback from
supervisors, peers and direct reports to generate performance ratings and identify
improvement areas for each goal. A centralized salary and incentive budget is distributed
through this automated system, with rewards dependent largely upon individual and
regional performance.

Zensar global HR function is headquartered in Pune, India. Due to the companys

aggressive staffing policies, the founders recognized the need for robust data management.
In 1995, the company invested in an established HRMS to manage employee information.
The system has been upgraded and is considered to be a best-in-class application.

DigiSpace
DigiSpace gives importance to providing customized client solutions. DigiSpace culture
encourages teamwork to foster innovative ideas from a customers perspective. Its
performance management system varies by geography. In Belgium and France, the system
is based primarily on supervisor review, while in Switzerland and Germany assessments
are based on 360 feedback. In all locations, the performance feedback is factored against
the individuals goals, with base salary increases and annual bonuses determined by the
supervisor. Budget approvals are managed by the respective geography VP HR and VP
Finance.

DigiSpace has a decentralized HR structure, with different functions located in Belgium,

France, Switzerland and Germany. HR programs and policies are administered in
conjunction with local laws and practice. Key employee statistics, including number of
employees and compensation, are reported to the HQ annually. The system used in all
geographies was designed by an external vendor. Each geography has its own HR function,
but share a common technology platform.

Details regarding DIGISPACE Top Executives:

Andrew Redberg

Mr. Redberg is the Chairman of DIGISPACE. Prior to DIGISPACE, Andrew has held a
variety of management, operations, engineering and sales responsibilities. Mr. Redberg is
passionate about research and development of cutting-edge technology. He graduated from

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the Nanyang Technological University with a dual degree in Computer Algorithm
Applications. Andrew majorly looks after the finance and business fronts of DigiSpace.

Lisa Redberg

Mrs. Redberg, co-founder of DIGISPACE, was Andrews college mate and they got married
after getting graduated. She currently holds Operations and HR portfolio for DigiSpace.
Prior to this company, she worked in various positions such as Chief Operating Officer and
Sr. VP of Human Resources at Microsoft.

Ryan WillsWorth, Finance Head

Mr. WillsWorth, Head of Finance of DigiSpace, joined the company in 2010. Prior to this,
he was the VP, Corporate Finance for Compaq. He earned an MBA degree from Duke
University and a Bachelor of Science degree in Financial Engineering from Oxford
University. He seems to have concerns about the parent organizations working culture
and is unsettled by the announcement.

Cristina James, CTO

Ms. James is the Chief Technology Officer of DigiSpace and she joined DigiSpace in 2011.
She shares the same passion as the owners towards building innovative financial products.
In this role, she is responsible for design and development of products and played a key
role in developing The Smart Gateway, which boosted companys growth and reputation.
Prior to DigiSpace, Ms. James held engineering, product research, and management
positions with Motorola and AT&T Technologies. She graduated with a bachelors degree
from MIT, and a Ph. D from Harvard. She is highly respected for her technical knowledge
and may be difficult to replace in future. She is vulnerable to being head-hunted by other
similar technology firms.

Jeffery Roth, Operations Head

Mr. Roth joined DIGISPACE in January 2012. He is responsible for end-to-end operations.
His primary focus is to improve companys efficiency. Prior to joining DIGISPACE, Mr.
Roth was VP, Operations at Singtel, Belgium. He earned a Bachelors degree in Industrial
Engineering from the National University of Taiwan and Masters degree in operations
from University of Southern California. Mr. Roth is known across the Digital industry for
his capability in operational excellence. He is disappointed with his new role because of
reduced responsibility.

William Beckley, HR Head

William, who joined DigiSpace in May 2011, looks after the Human Resource function.
Mr. Beckley have held several positions previously including the VP of Human Resources

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with Intel Corporation and Head of Compensation and Benefits for Verizon Wireless
Communications. Mr. Beckley holds a degree in psychology from Harvard University.
During his tenure at Intel, he worked on M&A transactions from HR standpoint. He is
unsure of his job as he thinks his role has become redundant.

Compensation Background:

Zensars total rewards program has been developed to support its performance
culture.
Employee compensation is at 50th percentile for base wages and 75th percentile for
total compensation.
Pay mix for top management is 60% base, 20% annual cash incentive, and 20% stock
options.
All other employees have a fixed-variable pay mix of 80%-20%.

DIGISPACE follows a premium pay philosophy.

The fixed-variable pay mix for executives is 75%-25%.
Note: DigiSpace pays 12% more as compared to Zensar.

Questions:
Your manager, Sunil, and you, after analyzing the HR Due Diligence findings, have come
to the following conclusions regarding the areas that need to be addressed

Strategy Questions

Identify which executive do you consider to be eligible for retention bonus and suggest
their retention period? Also, provide rationale.

Financials

What should be the post-acquisition compensation mechanism for DigiSpace Top

Management? Why?
What should be the form of providing Retention Bonus to DigiSpace Executives? Why?
(Additional points for Innovative Retention Plans)

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 HR Retention Plan

What should be the timings and conditions for the retention payout?
Should performance criteria be included? If Yes, What should be the key metrics?

Culture

What should be the approach of the top management to align the culture of the two
companies within three years?

Operations

Should the operating style of DigiSpace prior to the acquisition remain the same or
should it be aligned to Zensars working style? Justify.

Important points to be kept in mind while proposing solutions:

The solutions should be realistic and practical.

Cost considerations must be made, wherever required
Best practices from the industry, if used, must be supported with examples
Use and state reasonable assumptions wherever you feel data is missing.

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