Kanbay

» see kanbay.com as it lived, on the wayback machine

~ the last words ~

Kanbay sold to banks. That is the whole explanation for why a company with nearly seven thousand people on its payroll left almost no trace in public memory: its customers were credit-card processing departments and mortgage servicers, and its product was other people's internal systems. Raymond Spencer and two partners started it in 1989 outside Chicago, in Rosemont, Illinois, and built the delivery side in Pune. The arrangement that later became ordinary across the whole Indian IT industry was running here while the word offshore was still jargon.

The company listed on Nasdaq in July 2004 under the ticker KBAY. It sold 5,362,500 of its own shares at $13.00 alongside 2,860,000 from existing holders, and cleared about $60 million net. The prospectus and the first annual report that followed are unusually readable documents, because they say the quiet part in the risk factors. For 2003 and the first nine months of 2004, five clients together produced 80.7 percent of revenue. For the full year 2004, Household International and its affiliates inside the HSBC Group alone produced 55.6 percent.

Household was not only the client. It was also the largest shareholder, holding around 14.2 percent of the stock after the offering. A company whose biggest customer is also its biggest owner has a very comfortable few years and exactly one thing that can go wrong. Capgemini signed the merger agreement on 26 October 2006 and closed it on 9 February 2007, paying $29.00 a share in cash for a business it valued at roughly $1.25 billion. Kanbay became Capgemini's financial services arm and the name came off everything.

~ the record ~

~ one client, mostly ~

Concentration like that is not a secret in a public company. It is printed in the risk factors and repeated every quarter, and investors buy the stock anyway because the revenue is real while it lasts. What made Kanbay unusual was that the same counterparty sat on both sides of the ledger: Household was the biggest buyer of the work and the biggest owner of the company doing it.

That is a structure nobody designs on purpose. It accumulates. A services company wins a large account early, the account funds the growth, the account takes equity along the way, and a decade later the account is the company. Growth after the IPO went into Hyderabad and Chennai and into clients who were not Household, but it never moved the ratio far enough to change the risk.

~ thirteen dollars a share ~

The 2004 offering came at the right moment. Indian IT was being repriced upward by American investors who had spent four years watching their own consultancies die, and a Chicago company with a Pune delivery center read as the safe version of both. From the $13.00 listing to the $29.00 Capgemini paid is a little better than a double in thirty-one months.

I have no personal distance to perform here, because there is nothing to be distant from. This category never had a consumer face anywhere, including Turkey, where the same offshore model was arriving from the other direction in those years and local software houses were learning to bid for European work. In 2004 I was studying computer engineering in Ankara, and this entire industry reached me only as a line in a newspaper business section.

~ sold at twenty-nine ~

Capgemini wanted the client list and the Pune headcount, and it got both. What it did not want was the brand, which had no value outside a few dozen procurement departments. Kanbay's last fiscal year was never reported as a Kanbay fiscal year, because the merger closed before the annual filing was due.

kanbay.com answers today with a 114-byte stub, which is the sound a corporate domain makes when somebody keeps renewing it and nobody remembers why.

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