Indian IT-BPO Pack Stay Away from M&A Action during Economic Downturn

With the economic downturn continuing into the second half of 2009, IT and BPO firms have stayed away from big M&A action. This is despite Tech Mahindra's takeover of beleaguered IT firm Satyam.

On the whole, merger and acquisition activity in the first half of this year was well below 50% in terms of volume and value than levels in the previous year. While the total value of deals for the January to June, 2008 period tagged at $1.3 billion, while the M&A space capped at $616 million in 2009. Grant Thornton compiled the data for M&A activity.

Although the Tech Mahidra-Satyam acquisition rigged up figures for domestic-Indian transactions, the total for inbound and outbound decreased 83 percent to $156.5 million in the January to June period in 2009. This cross-border volume for deals tacked at just 13, while last year's levels were considerably higher at 47.

S. Mahalingam, Tata Consultancy Services CFO, said in a statement, that the declining level of mergers and acquisitions underscored the sector's preoccupation with just driving business on a day-to-day basis, given the tough economic climate. In addition to that, major players involved in M&A activity in the IT arena are few. So, acquisition is likely to see a dip in activity, said Mahalingam in an online report by The Hindu Business Line.

Although there is some talk of a recovery in the industry, the IT-BPO export segment is likely to see subdued growth in the fiscal year 2010. Indian trade organization, NASSCOM has said that India's IT and BPO sector is likely to tag a rate of export revenue growth just 4 to 7 percent for the fiscal year 2010. This is quite a bit lower than the 16.3 percent raked in during the fiscal year 2009.

Partner of Grant Thornton India, H V Harish, commented that the general mood in the IT-BPO sector has been feeble because of the economic slowdown in major export markets. He added that mergers and acquisitions was not really a priority for most major companies. Despite the fact that outsourcing activity is likely to progress toward the second half of the year, full-year figures are still likely to be lower than year ago figures.

Although Tech Mahidra's takeover of troubled Satyam represented a significant chunk of the mergers and acquisitions pie, there were other M&A players who were also involved in takeover activity - for instance, Essar Group BPO unit Aegis acquired UCMS Group for approximately $45 million.