Zenith Infotech: Inside the QVT Financial Hedge Fund
When Zenith Infotech defaulted on a Sept. 21 bond payment, QVT Financial — a hedge fund with $6 billion under management — apparently was among the investment firms that missed out on the payment. Now, it sounds like QVT is taking legal steps to explore Zenith Infotech’s recent spin-off of Zenith RMM. But who exactly is QVT Financial and what is their interest in Zenith Infotech’s business? Here are some thoughts.
First, it’s important to understand the back-story so far.
- The spin-off: Summit Partners, a private equity firm, acquired Zenith RMM from Zenith Infotech in September 2011. Zenith RMM CEO Michael George told MSPmentor that Zenith RMM is now a completely separate business from Zenith Infotech. And in an open letter to partners and customers on Oct. 17, George again described Zenith RMM as a completely separate company (though Zenith Infotech has stated that it has a minority stake in Zenith RMM).
- The bond default: Meanwhile, Zenith Infotech defaulted on a $33 million bond payment in September 2011. But the figure is likely closer to $85 million because the bond default set off additional financial triggers, according to the Times of India.
- The statement to partners, customers: Zenith Infotech CEO Akash Saraf has publicly stated to partners and customers that Zenith Infotech is financially solvent, strong and stable. Saraf has also stated that Zenith Infotech is negotiating with bondholders to pursue a new payment schedule.
Now, QVT Financial has allegedly filed a petition against Zenith Infotech in a Mumbai civil court. MSPmentor has not seen the petition, nor have we directly confirmed its existence. But the Times of India says the petition:
- (A) seeks to stop the sale of Zenith RMM if the deal is not done yet.
- (B) seeks to block any additional Zenith Infotech asset sales without the approval of shareholders; and
- (C) asks for the full value and structure of the Zenith RMM spin-out deal to be disclosed if the unit has already been sold.
I think bullet A is no longer in play, since Zenith RMM management says the spin-out is a done deal. The big question: Will Zenith Infotech, Zenith RMM and Summit Partners need to comply with bullet C? I’ve reached out to each company for comment but don’t have an immediate answer to that question.
Inside QVT Financial
I’ve been trying to gather more information about QVT Financial — the hedge fund’s history, strategy and alleged concerns with Zenith Infotech. MSPmentor dialed QVT Financial’s New York offices multiple times today, leaving messages for Managing Director Nicholas Brumm and other local employees. A switchboard operator answered each time and wrote down our questions. As of this writing (8:11 p.m. ET, Oct. 17), MSPmentor has received no response.
The QVT Financial website and LinkedIn communities offer few details about the company. Many of the QVT employees on LinkedIn disclose only a first name and last initial.
Still, this much is clear: QVT Financial sometimes wages legal wars. Over the years the company has apparently filed suit and legal petitions against:
Looking ahead, QVT Financial wants to see financial details related to Zenith Infotech’s spin-out of Zenith RMM. We’ll be watching the situation — halfway around the world — to see whether India’s courts decide if Zenith Infotech needs to comply with the request. We don’t know if or when such a ruling will occur.
Don’t Underestimate Zenith Infotech
Meanwhile, some rivals are beginning campaigns to question Zenith Infotech’s financial health. Admittedly, it isn’t good news when a high-tech company defaults on a bond payment. And it’s wise for MSPs to study the financial health of their technology partners.
But keep this in mind: The Saraf family, which leads Zenith Infotech, has very deep pockets. According to ACE Equity, the Saraf family was listed number 392 on India’s list of richest billionaire families for 2011. I realize personal wealth is not to be confused with a specific company’s current financial performance.
I guess my point is this: QVT knows how to navigate the court system and financial markets. But it’s a safe bet that Zenith Infotech does as well.
For MSPs that partner with Zenith Infotech I recommend three steps:
- Continue to speak regularly with your Zenith Infotech rep to monitor the company’s product portfolio and overall performance.
- Yes, keep an eye on the competitive landscape. Listen to your trusted sources but be careful to separate FUD (fear, uncertainty and doubt) from factual updates.
- Watch the Bombay Stock Exchange to track potential chatter about Zenith Infotech’s stock. If there are additional developments involving Zenith Infotech, I suspect you’ll find them first there.
We’ll continue to offer all parties equal time as we track the story.