The Hindu Business Line : Technology sector outlook bullish; billion dollar deals in the offing

Hyderabad, Dec. 30 Top four IT services providers are poised to get lot bigger and possibly close two-three billion dollar plus acquisitions deals during the year even as there is move by MNCs to hive off internal business process outsourcing arms to third parties.

The gap between the big four and other IT services providers is set to widen. However, those with specialised verticals and niche business would consolidate with smaller mergers and acquisitions, according to Mr Rajesh Jain, Head of ICE Practice at consultancy services firm KPMG.

Significantly, as large European outsourcing deals (such as ABN-Amro couple of years ago) come up for renewal, the Indian service providers, whose services breadth has increased over the years, are now better placed to garner many of them.

Providing insights into shape of things likely to unfold in the technology sector, Mr Jain told Business Line that the sector is poised to witness higher levels of M&A activity with Tier II and III services providers pursuing deals in $5 million to $200 million band.

“With rupee strengthening against the dollar, it is now a wake up call to MNCs with internal BPO outfits. This will clearly lead to couple of trends – that is focus on core business and hive off to third parties and also grow in some cost effective markets in Europe,” he explained.

PRIVATE EQUITY ISSUE

Alongside, another trend is likely, that is large US private equity firms with billions of dollars of investments are looking at exiting some of their investments in the US and this money would logically flow into Indian companies.

Referring to the sub-prime crisis, Mr Jain said contrary to general perception that slowdown would impact IT budgets and Indian outsourcing companies, most US corporations would look at the cost-effective management capabilities of outsourcers here.

However, this would also lead to the emergence of India’s bargaining power. The stage for mega deals is likely to shift from the US to Europe to address the dollar concerns too.

TRANSFORMATION

According to the Director, Outsourcing Services, HP India, Mr Marshal Correia, because of the growth, cost and competitive pressures, organisations are undertaking transformation initiatives on IT to leverage technology for better reach to the market, strengthening customer relationships and reducing transaction costs.

“There are several initiatives around centralisation of IT, consolidation, virtualisation, risk mitigation and building business continuity measures. This is translating into projects related to new dimensional product implementation. In BFSI, this is more related to core banking, datawarehousing and CRM, with a move towards adaptive infrastructure,” Mr Correia said.

On tech momentum, Mr Correia said “we see the momentum continuing as the penetration thus far, has been low and there has been no legacy per se. We see the IT services market in India showing double digit growth, with outsourcing services growing by 25-30 per cent.”

Infrastructure services including data centre, network management, end-user computing and remote infrastructure management are poised for growth. Customers are looking at enhanced service levels and 24/7 availability because of high dependence of the business on IT.

Research firms such as Gartner, Forrester and IT services major IBM believe that ‘solutions accelerators’ are poised to make big difference in the technology landscape.

During a recent interface with Business Line, Head of IBM Global Business Solutions Centre, Mr Jeby Cherian, explained how these are likely to help services companies accelerate product implementation on a services-oriented architecture across various verticals.

The Managing Director of Sapient in India, Mr Sandeep Dhar, said that the power of convergence would be unleashed and become a big driver in 2008 as electronic channels and mobile delivery are poised to grow and streamed over wireless devices.

Convergence

Mr Jain said in India too, convergence would become a big business opportunity for IT solutions providers.

In 2008, one need not get surprised to see some one actually inserting a disk into a mobile phone to watch a movie. While this would be a new delivery channel for media, this also brings opportunities for services providers.

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