Indian IT-BPO firms hot on acquisitions

Unfazed by the sovereign debt crisis in Europe and political protests in the US against offshoring, Indian information technology (IT)-business process outsourcing (BPO) companies are busy acquiring more companies, data reveal.

Consider this: The share of IT & ITeS (IT-enabled services) in the overall merger and acquisition (M&A) deals during the January-June period went up by 40 per cent, according to data compiled by Venture Intelligence, a research service focused on private equity and M&As. The IT & ITeS M&A deals had jumped 26 per cent in the same period last year.

The bullish sentiment is also reflected in the number of deals closed. The total number of deals was 48, with a value of $328 million across 20 deals with announced value, compared to 36 in the same period last year.

However, these numbers are not comparable to the boom periods of 2007 and 2008. In 2008, the total number of outbound M&A deals for January-June was 45, with a value of $615 million across 19 deals with announced value. Similarly, in 2007, the total number of deals was 30, with announced value of $1,322 million across 14 deals.

"The share of IT & ITeS among M&A deals has gone up quite strongly in 2010, accounting for 40 per cent of the deals from 26 per cent in the same period last year. Given that over 50 per cent of IT & ITeS deals are outbound in nature, Indian IT companies are clearly taking advantage of the lower valuation available in markets like the US (13 deals) and UK (4 deals)," said Arun Natarajan, chief executive officer of Venture Intelligence.

"The deal pipeline has been quite strong in the IT/BPO sector for months now. However, the global economic environment did play its part in delaying the final decision-making for both buyers and sellers. But, with the current general sentiment that the bottom of the economic decline has been reached and an anticipation of a growth-oriented future outlook, the deal triggers are getting pressed. So, we anticipate significant activity in the M&A and PE segments unless the euro crisis spirals out of control," said Amit Singh, executive director and global head of technology and outsourcing at Avendus Capital.

Singh also pointed out that the lower valuation expectation in the US was an important ingredient for the M&A sentiment. "Valuation expectations are down by 25 to 30 per cent in certain segments. Of course, this is not a blanket rule as there are sub-sectors like healthcare and remote infrastructure management, which are still commanding high valuation," he added.