Zenith Infotech CEO: Debt Issue Won't Sink Company

Zenith Infotech CEO Akash Saraf said the company’s recent bond default is a matter he takes seriously. But Saraf wants to assure Zenith Infotech’s MSPs, partners and customers that “we’re in the process of getting this fixed. It’s not something that will sink the company.” Saraf made the statements to MSPmentor today. To reinforce his point, Saraf described how Zenith Infotech is marching forward with new product rollouts, including virtualization and enterprise enhancements to the SmartStyle Computing platform.

Zenith Infotech defaulted on a bond payment that was due in September 2011. Reports from India suggest the debt is about $85 million. Zenith Infotech has declined to discuss how the potential debt negotiations with bondholders could potentially unfold. But in recent days, MSPmentor has interviewed two CEOs who have faced similar debt dealings. Both CEOs said it’s standard operating procedure to decline comment about debt negotiations, since the discussions can often take months — and sometimes years — to resolve.

Remaining Focused on R&D, Customers

Saraf declined to discuss specifics about the debt negotiations with MSPmentor today. But his comments repeatedly shifted back to Zenith Infotech’s channel partners. His key message: You’ll continue to see Zenith Infotech in the market at major events; you’ll continue to see Zenith Infotech promoting its customer support and long-term warrantees; and you’ll continue to see Zenith Infotech launch new and enhanced products.

A few examples: Zenith Infotech’s SmartStyle computing platform will gain support for multiple hypervisors, and a SmartStyle Enterprise edition for larger deployments is under development. It sounds like many of the Zenith Infotech enhancements are set to debut in Q1 2012.

Still, Zenith Infotech faces pressure on multiple fronts. In addition to navigating the debt negotiations, Zenith Infotech must assure its partner base — about 3,000 MSPs — that its business remains viable. The company’s SmartStyle and cloud efforts got off to bumpy starts in 2010 or so amid early bugs, according to several MSPs.

Some rivals are now promoting competitive offers to recruit MSPs away from Zenith’s cloud, backup and disaster recovery solutions. Moreover, additional rivals are promoting NOC (network operations center) services head-on against Zenith RMM, a recent Zenith Infotech spin-off that is now majority owned by Summit Partners. For instance, NetEnrich has been using Twitter to promote messages aimed at Zenith RMM’s NOC customer base. Axcient is running a Google Adwords campaign heads-up against Zenith Infotech. And Doyenz has aggressively positioned itself as a Zenith Infotech alternative in recent months.

Even before Zenith Infotech’s debt default, it was clear that competitive showdowns were set to escalate. While Zenith RMM and Zenith Infotech continue to partner, each company appears to be accelerating plans to embrace new partner engagements. For instance, Zenith RMM is pursuing backup and cloud partner alternatives to Zenith Infotech, and Zenith Infotech is preparing RMM integration alternatives to Zenith RMM.

But back to the heart of the matter: Zenith Infotech’s debt default. Saraf continues to maintain that the company is financially solvent, and Zenith Infotech is marching forward with more R&D to serve MSPs. Separately, MSPmentor has confirmed Zenith Infotech’s continued participation at a range of industry conferences, according to third-party sources.

What do I think? I’ve heard extreme scenarios from both sides of the aisle. Some Zenith Infotech rivals allege that the bond default is a serious warning sign for Zenith Infotech’s MSPs. But the two CEOs who have faced similar debt defaults tell me it’s possible for companies to emerge even stronger once the debt negotiations are completed.

Of course: Zenith Infotech partners should watch the situation closely. A bond default is serious stuff. But be careful to separate confirmed information vs. unsubstantiated FUD (fear, uncertainty and doubt) that often spills into the market.