Indian tech firms bullish on overseas acquisitions

Irrespective of the currency crisis and economic uncertainties plaguing the European economy and growing political opposition in the United States to offshoring, Indian IT and BPO firms are hectic in acquiring new companies, mostly overseas, with a view to enhance their onshore presence.

According to statistics accumulated by a research service dedicated to private equity (PE) and merger and acquisition (M&A) Venture Intelligence, taken as a whole, the stake of the Indian IT and ITeS firms in the M&A transactions during the period between January and June this year rose by around 40 per cent, compared to 26 per cent rise during the corresponding period in 2009. In fact, the upbeat response is also evident from the number of transactions that have been finalized thus far. During January and June this year, Indian tech firms closed as many as 48 deals having a total value of $328 million. In comparison, only 36 deals were finalized during the corresponding period in 2009.

Nevertheless, the data collected by Venture Intelligence points out that the number of deals closed this year are far less in value compared to the M&A transactions during the IT boom period in 2007 and 2008. While the Indian tech firms closed 45 deals worth $615 million between January and June in 2008, the overall deals finalized during the corresponding period in 2007 were 40 with a cumulative value of $1,332 million.

Quoting the chief executive officer of Venture Intelligence Arun Natarajan, a business website reports that the portion of the IT and ITeS amongst M&A transactions has increased rather robustly by 40 per cent during the first half of 2010 compared to the 26 per cent during the corresponding period in the previous year. He further said that considering that around 50 per cent of the IT and ITeS transactions are outbound in nature, the Indian tech firms are evidently cashing in on the lesser valuation accessible in the US and the UK markets, where they have closed 13 and four deals respectively this year.

Echoing Natarajan’s views, Avendus Capital executive director and global head of technology and outsourcing Amit Singh said that the number of M&A deals closed by the Indian tech firms during the last few months has been quite significant. According to him, the economic scenario prevailing worldwide had withheld both the buyers and seller from taking a final decision regarding these deals. However, with the common belief that the worst has already been over, there is a growth-oriented outlook everywhere and this will lead to further M&A deals provided the European crisis does not deteriorate beyond control, Singh added.

Now, take a look at the M&A deals closed by some of the Indian tech firms between January and June 2010. Aditya Birla Minacs, the BPO arm of Aditya Birla Group, acquired the Bureau of Collections Recovery based in the US and UK-based Compass BPO. Aegis too made two acquisitions – AGC Networks and the customer service center of Sallie Mae, while Patni Computer Systems purchased CHCS services during this period. In addition, Symphony Services acquired Proteans Software Solutions, Genpact took over High Performance Partners, MphasiS purchased Fortify Infrastructure Services and MindTree acquired 7Strata!