The pace of IT and BPO companies merging is slowing down. The reason for this is simple, at one point in time during December to February the morale and business confidence was its lowest and valuations had come down to multi year lows. However since february the markets have now again reverted and regained the lost ground.
This has resulted in valuations going up and hence mergers and acquisitions at these levels are risky.
Bangalore: In 2009, it seems that IT and BPO companies have stayed away from blockbuster merger and acquisition (M&A) deals. According to the data tracked by Grant Thornton, an accounting and consulting firm; against the total deals value of $1.3 billion in January-July 2008, the M&A space grossed only $616 million this year.
While the Tech Mahindra-Satyam deal bolstered the domestic numbers, the total value of cross-border deals (outbound and inbound combined) fell 83 percent to $156.5 million during January-July this year. The cross-border deal volume at 13 deals 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 in January-July 2009, compared with 39 deals that yielded $258.3 million in the corresponding period last year. S Mahalingam, CFO and Executive Director, Tata Consultancy Services 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."
According to Nasscom, India's IT and BPO industry is expected to clock an export revenue growth rate of 4-7 percent in the financial year (FY) 2010, substantially lower than the 16.3 percent recorded in FY 2009. Harish H V, Partner - Grant Thornton India said, "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."
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The biggest M&A this year in the IT BPO space was Tech Mahindra buying out Satyam Computer services. The gamble seems to have started paying off. I was recently reading a few articles mentioning that Mahindra Satyam, the new entity was chasing as many as 30 big deals. That’s quite phenomenal for a company that has gone through very tough times.
The subsidiaries of Mahindra Satyam seem to be also doing some great work. Recently published news stories state that Mahindra Satyam BPO has won new business in the services space and was looking at hiring about 700 people. This is great news for Mahindra Satyam BPO and the people in the BPO industry. Great work team Mahindra Satyam BPO for scripting such a wonderful turnaround.
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