The Indian IT industry could see increased merger and acquisition activity in 2009, particularly among mid-tier firms, analysts say.
Global enterprises under pressure to optimise costs are pressing ahead with vendor consolidation — the scale may be tilting towards bigger vendors who are agreeing to price cuts against larger volumes.
Industry watchers, therefore, sense marriages of convenience. "Unless you are a very niche player, it makes sense to consolidate," executive director of KPMG’s advisory services KK Raman says. "One encouraging fact is the range of valuations we are seeing now. Companies will look at acquisitions as a means to add competencies, customers, and geographies."
Management consulting firm Zinnov agrees. With the valuations of most IT companies hovering around seven times of their yearly revenues, it’s lucrative for large companies to adopt M&A strategy to build domain expertise and the client base, the firm’s director of advisory services Chandramouli says.
He expects a "lot of consolidation" as it is a good time for Indian service providers to move up the value chain and align themselves with the information technology outsourcing goals of clients.
"This is the time for internal changes and service delivery innovations, which will enable Indian companies to replace the top league of IT services companies and become true value partners to clients. Tier three IT companies are under immense pressure to reduce burn rate and manage cash flow. We can expect companies with headcount in the range of 300 to 500 to be up for sale in next few months," Chandramouli says.
The hot areas in 2009 could once again include the ERP space — HCL had acquired UK-based SAP consulting firm Axon last year for a record £441.1 million.
"Engineering services, testing and infrastructure management will be interesting as well," says KPMG’s Raman.
While consulting was thought of as being a hot area in 2008, Raman expects more alliances from now on rather than mergers in the space. "Consulting adds very little to revenues. It helps is cross-selling but that applies only to the top five players," he says.
Meanwhile, PricewaterhouseCoopers, in a report released today said the trend of emerging markets companies acquiring western European targets has continued to grow in 2008, from 188 in 2007 to 256 in 2008. Of this number, about 124 were completed in the second half of the year — a period when the credit crunch is believed to have severely impacted transactions.
The firm predicts that while overall deal values are likely to fall by over 30 per cent in 2009, volumes could rise to as much as 350.
0 comments:
Post a Comment