Emerging from the shadows of global downturn on a firm footing, large outsourcing firms such as Wipro, Genpact, Infosys and TCS are all actively scouting for overseas buyouts spanning diverse areas such as cloud computing, mobility, analytics engineering, finance and accounting or, in some cases, for a foothold into newer geographies, and verticals including healthcare.
While these Tier-1 IT and BPO vendors are keen on buyouts in markets such as the US, Europe and Japan among others, industry watchers expect most of the acquisitions to be in the small to medium range.
“During recession, companies wanted to conserve cash. Now with economic recovery, there is more certainty, and this, in turn, is driving the acquisition appetite. Also, the valuations in Europe continue to be attractive,” points out Mr Harit Shah, an analyst with brokerage Karvy Stock Broking. Over a two-year period (June 2008 and June 2010), the cash and cash equivalents for Infosys and Wipro, more than doubled to $3.4 billion and $1 billion, respectively. In the case of TCS, the cash and liquid fund position stood at about $1.8 billion as on June 2010.
Acquisitions
“We are looking at string of small pearls in areas such as cloud computing, sustainability, mobility, collaboration and social computing,” said Mr Suresh Vaswani, Joint Chief Executive Officer of Wipro Technologies. The company is looking at firms in these areas which have built some scale, he pointed out. Last quarter, the company acquired a data centre of Citi in Germany for $5 million – a deal that would help the company serve local clients.
Even BPO major Genpact – which currently has about $352 million in cash and cash equivalents and in short term investments – says it is bullish on multiple acquisitions and will go after buys anywhere in the range of $50-100 million.
“We will focus on small buyouts which fill-in niches in our product offerings like analytics engineering, small platform-to-service mortgages, add capabilities in finance and accounting. Or it could be for a new platform to deal with Sarbanes-Oxley work, or for particular skills around the pharma industry that we serve,” the Genpact President, Mr Pramod Bhasin, said. Genpact – which recently acquired Symphony Marketing Solutions – says its next acquisition stop could be in markets such as the US or Europe.
Acquisition is clearly on mind of other large outsourcing vendors too. TCS, for instance, says it would do acquisitions to fill gaps or acquire strategic capacity but has ruled out an “acquisition for revenues”. “We have been looking at Europe for quite sometime and Japan, as well as for our healthcare services vertical. But, we have not been able to find a good fit,” Mr N Chandrasekaran, CEO of TCS, told Business Line recently.
New geographies
Infosys Technologies says while it would like to keep the next one year’s expenses as cash at any given point of time, it is also “focused on inorganic growth.” “We are focused on acquisitions for strategic reasons…to penetrate new geographies, enter into new industry verticals or to acquire new services. It could also be to acquire IP (intellectual property) which will enable us to build a service portfolio around it. We are not looking at acquisitions to grow revenues,” the Infosys CFO, Mr V. Balakrishnan, said.
Industry analysts opine that in most cases, vendors are likely to pursue smaller acquisition targets (up to 10 per cent of revenue), given the complexities of integration and margin dilution associated with large buyouts.
Source:http://www.thehindubusinessline.com/2010/08/25/stories/2010082551440900.htm
