Inorganic growth on the rise among ITO cos in Asia Pacific - Everest Research Institute

Cos placing higher value for acquisitions in APAC than in North America or EMEA

Delhi NCR/Gurgaon, November 19, 2008 ─ A latest study by Everest Research Institute has shown that ITO suppliers in the APAC region are increasingly looking at mergers and acquisitions to sustain their growth momentum. Out of the 114 major M&A deals completed by 34 leading ITO suppliers worldwide between January 2004 and September 2008 included in the Everest study, APAC contributed approximately 14% of total number of deals.

While half of the M&A deals occurred in North America, Everest analysts observed a fast growth of acquisitions in EMEA, demonstrating a renewed focus on Europe. In fact, the study has found that M&A activity has been steadily rising among ITO suppliers year-on-year ever since 2004. Among the ITO M&A deal target service lines, Application Development & Maintenance (ADM) and IT Consulting emerged as the hot favorites with 37% and 31% of deals respectively.

Another interesting perspective that emerged from the study is that the average deal size in Europe (USD 415million) and in APAC region (USD 325 million) is higher than that in North America (USD 221 million). Explains Gaurav Gupta, Principal & Country Head, Everest Group, "ITO suppliers are purchasing larger firms in EMEA as compared to other geographies, which explains the highest average acquisition price there. However, it might come as a surprise to note that companies are putting the highest value per dollar invested to firms not in US or Europe but to acquisitions in the APAC region! While the average multiple ratio for an acquisition in APAC is 2.90, it is 1.41 in EMEA and 1.77 in North America."

The study also indicates that the spurt of inorganic growth among ITO suppliers is not due to the economic slowdown only. Says Shiraz Ritwik, Research Director, Everest Research Institute, "We have observed six main themes that characterize M&A activities in ITO - enhancement of offshore presence; expansion into newer geographies; acquiring industry-specific skills, especially domain-specific consulting skills; buying into existing book of business (i.e., existing client-base); plugging gaps in their service portfolio by acquiring specific IP or skill-set; or consolidating their offshore operations." Of these, the biggest levers for a majority of M&A deals have been filling gaps in service portfolio (36%) and acquiring industry-specific skills (35%), adds Shiraz.

Elaborating on specific implications of the study findings on India, Gaurav says, "India has been strategic both from a standpoint of acquisitions as well as acquirers. While 8 of the total 114 M&A deals occurred in India, as many as 9 of the total 34 ITO suppliers acquiring were from India. As we move along, we hope to see more of big Indian suppliers looking at acquiring ADM capabilities to move up the value chain."

To read an extract of the Plugging the Gaps - Mergers and Acquisitions in IT Outsourcing, purchase the report, or inquire about other research services, please visit www.everestresearchinstitute.com or send an email to info@everestresearchinstitute.com.

Source : Equity Bulls

Keywords