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TUSC - Now an Indian-owned company

17 Feb 08

Note:  In the interest of full disclosure, please note that Burleson Consulting is a direct competitor of TUSC. Wherever possible, I have tried to cite verifiable third-party sources in this news report.

The TUSC web site has announced that TUSC has been acquired by Rolta, an IT company owned and based in India.  The TUSC official business name is “Broech Corporation”, an amalgam of the names of the founders, Joe Trezzo, Rich Niemiec, and Brad Brown.

As a self-proclaimed "leading provider" of USA Oracle consulting, TUSC has a history of actively seeking awards which are reserved for American Owned companies.  In the past, TUSC proudly advertised their All-American status (Niemiec liked to mention that he is an ex-Marine) and TUSC touts their award by Inc. 5000 list of the fastest growing USA companies, an award for which they appear to no longer be eligible:

“they had to be U.S.-based, privately held, and independent--not subsidiaries or divisions of other companies--as of December 31, 2006."

Rolta says that their purchase of TUSC will provide them with improved access to the American market, and suggests that TUSC will be used as a vehicle for for deploying their Indian experts within the United States:

“[The acquisition of TUSC] will bring to Rolta a strong portfolio of products and customers; improved access to complementary markets and industry service lines; and strengthen its global delivery model”

In the Dan Norris blog, some people predict a rough road ahead for TUSC now that they are an Indian-owned entity:

“I definitely think that most people could not have foreseen TUSC being acquired, especially by an Indian firm, but it looks like Acquisition Wednesday is just full of surprises!

I know things must have changed since I worked there as I certainly could never have imagined this event coming to pass. I’m unable to predict how TUSC (or any 17+-year-old private firm) will fare as part of a public company.

Challenging times and big changes are in store I suspect.”

A bargain basement price for TUSC?

As an MBA, I was taught that the industry guidelines for the sale of a corporation is 2x of the past years gross revenue, plus goodwill that could take the price as high as 10x for a growing company with lots of growth potential.  Jason Starr of the Silicon Prairie notes that TUSC's Goodwill centers on the expertise of their staff, and given the probability of a talent fallout, 1x gross is a fair price for TUSC:

"Keep in mind that these are basically service-based businesses...and the assets walk out the door and go home every night.

There is no guarantee that people will stick around post-acquisition."

But not everyone agrees.  Bill Callahan notes that the sale price of TUSC of $48m is far too low for a company that claims gross revenues of $48m in 2007. 

“I don’t get it. Why did they sell out for just the revenue? I mean, the company expects growth right? So, they should at least be worth twice that.

Also, interesting that after years of “The American Way”, they sell to an Indian firm.”

With existing TUSC clients throughout the USA, there is some industry concern of increased exposure now that TUSC is owned by a foreign corporation, especially with the record of data theft by foreign owned Oracle providers. 

Jason Catena, notes that the Rolta association with TUSC may devalue TUSC as just another of many offshoring solutions:

"At a time when offshoring is still often perceived to be a "bad thing" and India is viewed by many in the U.S. as a second-class citizen of the world, does this make sense?

Absolutely! I say get over it and welcome to global economy. Thomas Friedman would be proud...and more importantly, congrats to the founders (again, it was supposedly an all cash deal...yee haw!)"

No word yet on how TUSC customers are reacting to working with a foreign-owned company, but many U. S. companies, (especially in the financial sector), require that their Oracle support be from wholly-owned U. S. corporations.

This Deloitte white paper suggests that special considerations are required when managing the risks associated with Foreign-owned IT providers:

"Many outsourcing and offshoring initiatives fail to live up to their potential or the expectations of the parties.

Even worse, a fair number of them fail outright, leading the company to either pull the operations back in house or to start anew in the search for a reliable, mutually beneficial partner"

Legal issues with foreign-owned companies

Do TUSC customers need to be concerned that TUSC is now Indian owned?  Indian owned companies regularly steal intellectual property from Burleson Consulting, and BC has found that the victims of IP theft from India have limited legal recourse when dealing with Indian-owned companies, who quickly claim to be outside the protections of U.S. copyright laws.

This article "Concerns of offshore outsourcers" notes that American companies may loose the legal protections that are afforded by U. S. owned companies, especially when managing databases, where mission-critical data could be siphoned-off to a foreign country, leaving the Oracle shop with little legal recourse:

"Bribing system, management cost of negotiation with officials, risks of detection of illegal activity, risk of breached contracts, etc. Increase the cost and difficulties of offshore business. Bangladesh, one of the popular destinations of offshoring, is the most corrupt country in comparison to Russia, India, China, etc.

Other concern is the theft of intellectual property. Sometimes domestic companies find that cosmetically near-flawless copies of their goods are sold cheaper in price than that of legitimate goods. Often these fake goods are returned to the company at the legitimate price.

Though IP laws are there, tracing down the overseas fake producer is extremely difficult. If these problems arise, the domestic companies doing business overseas may have no legal recourse. There are also reports of malpractice. "

The article also notes a Duke University study that indicates that Indian engineers are not of the same quality as U. S. Trained engineers:

"India is also supplying same number of graduate engineers as that of America, but they are not qualified enough.

Only 25% of technical graduates and 10 to 15 per cent of general college graduates are suitable for employment in the offshore IT and BPO jobs."

CIO magazine in an article titled "31 Risk in Offshore IT Outsourcing Contracts: Or Buying Promises", notes the significant legal risks associated with a foreign-owned IT provider:

"No matter how much due diligence you attempt, making a decision on contracting with an onshore or offshore IT service provider is much like buying promises.  . . .

No matter how much time on money you spend developing a clam tight contract with an offshore outsourcing provider you never want to have to consider international litigation or international arbitration for contract disputes."

Update 13 March 2008:  Dan Norris notes:  "I do not share your views.  For the record, I hope TUSC continues to be successful and that they are able to adapt to their new structure."

Update  September 21, 2008:  It appears that Dan Norris comment above did not disclose a small tidbit, that Rolta was in the process of negotiating to buy his company!  We see that Rolta has announced the acquisition of Piocon Technologies, where Dan Norris works.