IT companies still hungry for foreign buys

NEW DELHI/MUMBAI: Amid a global credit turmoil, Indian IT companies are treading the deal street. According to the latest deal tracker by Grant Thornton, the number of outbound deals was higher than the inbound deals���a reflection that India Inc was willing to acquire companies despite growing fears of a global slowdown.

Till August���just before the financial market meldown���more than 10% of the deals in the M&A space was in the IT sector against 3.91% last year.

Dealmakers are understood to be giving the finishing touches to two more deals���the outcome of which would influence the inorganic strategies of other IT firms.

HCL and Infosys are currently in the middle of a bidding war to acquire Axon, a UK-based SAP consultancy firm; besides, the grapevine has it that the local software giant TCS in talks with Citigroup to buy its BPO arm.

The two deals would be together worth $1.4 billion. If these deals fructify, the total value of IT deals this year would be more than double the value of last year���s $2.9 billion.

Till August, IT and ITeS stayed on top of the M&A deal space clocking 81 deals with a combined value of $2.53 billion.
The outbound deal activity in the IT & ITeS sector has gained momentum with 16 outbound deals and one inbound transaction between July and August. So far this year, the sector saw 42 outbound and 12 inbound deals.

Chances are that despite a global banking shakeout, which has cast a shadow on large IT vendors, deals would continue to happen. Pankaj Karna, head of M&A business at Grant Thornton, said that large value deals in outbound segment could be expected as India is left relatively unscathed by the subprime fiasco.



���IT and ITeS sector will remain a hot segment this year too. As valuations have become reasonable following the credit turmoil, many firms are looking at mergers and acquisition as a way to acquire new technology and as enter new markets at reasonable rates. Though leveraged high value deals may not happen in the inbound segment, we are expecting some large deals in the outbound space,��� he said.

The large-size outbound deals that happened between June and August include WNS Holdings acquisition of Aviva Global services for $228 million, Quatrro BPO Solutions buying a majority stake in the UK-based Babel Media for $110 million and Essar-owned Aegis BPO buying Nasdaq-listed People Support for $250 million. Another ITeS company CBay Systems bought 69.50% stake in MedQuist Inc. for $287 million.

���Indian companies which are sitting on cash and are in a position to leverage, but at reasonable cost would use this opportunity for inorganic growth as valuations oversees are depressed due to the financial turmoil. Primarily this deals will be done by cash in their coffers.��� PVC executive director Sanjeev Krishan.

However, investments by private equity players in this sector remained the lowest with only $302 million finding its way into IT and ITeS. This is just a fraction of the PE money that has come in sectors like real estate and infrastructure. In 2007, PR firm had invested $744 million in 67 deals with IT companies.