The Hindu Business Line : Cross-border M&As rise as cos vie to grow

THE merger and acquisition (M&A) activity, particularly in the technology sector, is on a roll. Trends indicate cross border acquisitions, especially among mid-sized IT companies.

The Vice-President of Gartner, Mr Partha Iyengar, told Business Line, "Gartner research insights point that M&A activity is driven by three major compelling concerns — the success of the global delivery model, business and domain growth and the capability to build relationships. The Indian technology sector has a clear 12-18 months lead, and to remain competitive, companies would increasingly take to M&A activity.

"While large MNCs like IBM and Accenture would be able to ramp up by about 4,000 and 5,000 people, mere hiring and delivery are two distinct issues. Hence, the competitive landscape will force more M&A."

Be it the acquisition of Comsat Max, a VSAT solutions provider, by the Bharti group, or of Cymbal by Patni, Account Solutions by ICICI Onesource , , Tele Atlas by Infotech , Eldorado by MphasiS, or Sceptre by Sierra, - - they have all meant expanding to new areas.

The Chief Executive Officer of Sierra Atlantic, Mr Raju Reddy, said, "Their recent acquisition of Sceptre Consulting, though not cross border, has opened up a new geography, and hence strategic in terms of both adding new clients and addressing a geography where Sierra was not present."

Quoting Mr Azim Premji's statement of lacing the pearls together, Mr Reddy said nothing describes it better.

The acquisition of Tele Atlas by Infotech Enterprises is radically different in terms of consolidation of the tele-mapping business and also adding over 600 people to its fold, at a time when trained human resources come with a premium.

After Patni's acquisition of Cymbal, Mr N. K. Patni, Chairman of Patni, had said, "Cymbal has deep IT architectural expertise in consultation skills in this space, a global delivery model that extends across seven international offices and two offshore development centres."

Commenting on the Eldorado acquisition, Mr Jerry Rao, Chairman and CEO, MphasiS, said, "This acquisition is part of MphasiS' overall business strategy to strengthen its footprint in the US and to enter the healthcare insurance and payment market. The deal is a perfect strategic fit for MphasiS, as it provides a well-established software platform and a marquis healthcare customer base."

Analysts see this as a good trend, since companies that focus on just one or two verticals are challenged for growth. "These acquisitions signal a new approach of companies to de-risk their exposure to a limited number of verticals and add one or two more to broadbase the opportunities for growth," said a financial analyst.

What started with Wipro, Cognizant and Infosys acquiring companies across the globe, has now attracted mid-size companies. Wipro acquired the energy and utilities division of AMS and Nervewire in the US. Cognizant acquired Infopulse in Europe and Ygyan in India. Infosys acquired Expert Systems in Australia.

All these acquisitions are positioned as enhancing the geographic footprint, strengthening verticals or solution expertise, or moving up the consulting value chain, according to Cognizant.

A recent study by consultancy firm KPMG had stated that globally, there is a general upsurge in M&A activity since the year 2000, which had witnessed a slowdown. The situation is far from bullish in the Indian context. In fact, M&A was lower by 25 per cent in 2004 in terms of overall deals. But this is changing.

`In the global loop'

THE Vice-President of Gartner, Mr Partha Iyengar, said, "As the competition gets tougher, and the window of opportunity becomes bumpier, the only way to rapidly expand into new geographies and even new domains is to go the acquisition route.

"While there are all kinds of acquisitions — Indian companies acquiring abroad and large companies like IBM eyeing domestic companies, the latter may get more exciting. This is because increasingly smaller companies are getting marginalised and bigger ones are consolidating through M&A. This is something very common in the matured markets, and India is gradually getting integrated to this trend," Mr Iyengar said.

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