The Hindu Business Line : Downturn halves IT/BPO mergers, acquisitions in Jan-July

Tech Mahindra’s acquisition of beleaguered Satyam fired-up the domestic deal street, but overall M&A and private equity (PE) transactions during the first seven months of 2009 were less than half of the year-ago levels in value and volume.

Against the total deals value of $1.3 billion in January-July 2008, the M&A space grossed $616 million this year, according to data tracked by Grant Thornton. While the Tech Mahindra-Satyam deal bolstered the domestic numbers, the total value of cross-border deals (outbound and inbound combined) fell 83 per cent to $156.5 million during January-July this year. The cross-border deal volume at 13, was a fraction of last year’s level (47 deals).

A total of 16 PE transactions in the IT and BPO space grossed $108.6 million during the period compared with 39 deals that yielded $258.3 million in the corresponding period last year.

When contacted, Tata Consultancy Services CFO and Executive Director, Mr S Mahalingam, said the subdued level of M&A activity underlined the industry’s thinking that given the tough environment, the focus should be on driving the day-to-day business. “Also, large players doing M&A on the IT side are few, and so the acquisition activity tends to pick-up pace during a period, and subsequently may see a dip,” he said.

Despite all the talk about green shoots of recovery, the IT-BPO pack is expected to see a muted growth in exports during FY10. According to Nasscom, India’s IT and BPO industry is expected to clock an export revenue growth rate of 4-7 per cent in FY10, substantially lower than the 16.3 per cent recorded in FY09.

“The entire mood in the industry had been weak due to the slowdown in key export markets. M&A was not on the top of the mind for most players. Although we expect the activity to pick-up in the coming months, the full-year numbers will still be lower than last year,” Mr Harish H V, Partner – Grant Thornton India, said.

While Tech Mahindra’s acquisition of Satyam, accounted for a significant chunk of the M&A pie, other in-organic moves include Essar Group BPO unit Aegis’ decision to acquire all shares of UCMS Group in an all-cash transaction, with an aggregate equity value of AUD 54 million (about $45 million).

Besides this, IT solutions provider Softpro Systems acquired 100 per cent equity stake in South Africa-based Cura Risk Management software for $19 million in an all-cash deal. Earlier this year, the Foreign Investment Promotion Board cleared Tikona Digital Networks’ plans to bring in Rs 237.3 crore (about $48.7 million); under the proposal, Goldman Sachs Investment Partners, Indivision India Partners, Oak India Investments and Green Lotus would invest in the company.

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