Indian and global software majors may soon be embroiled in a fight to takeover mid-size companies in Europe. A report released by investment banking firm Avendus Advisors in Mumbai on Wednesday said that Indian IT majors should pursue an aggressive M&A strategy in Europe.
The report said that continental Europe, which includes countries like Germany, France, Italy, Nordics and Spain, has a presence of several mid-sized companies that could fit into the strategy of Indian IT companies. Indian IT services players have been focussing on UK companies, which have contributed 75 per cent to their European revenues, according to the report.
"Global software majors like IBM, Capgemini, Accenture and HP are deepening their presence in these geographies with acquisitions in the range of $100-500 million in the last two years," Aashish Bhinde, VP, Avendus told HT. In 2005, IBM acquired Ireland-based Equitant in the financial services segment. This was followed up in December 2006 by Fujitsu Services, the European IT services arm of Fujitsu group, that acquired a majority stake in TDS, a German company that manages HR for others for $82.78 million.
"Till date, Indian IT services companies have been expanding organically rather than taking the acquisition route," said Stephan Goetz, MD of Goetz Partners, a corporate financing company. "The cultural barriers are high in continental Europe and the global IT companies are targeting acquisitions to get a footprint in these regions," said Ranu Vohra, MD, Avendus. He added that Indian IT companies, sitting on cash surpluses in excess of billion dollars, should look at acquiring companies in these places.
Indian IT services companies like TCS, Infosys, Wipro, Satyam and HCL have been looking at expanding their presence by setting up development centres in these geographies. But analysts reckon this is not enough to grow.
However, Indian companies are confronted with the problems such as margins of these companies. "The margins of companies in the $100 million range are lesser than ours, which makes an acquisition unattractive," N Chandrasekaran, global head, sales and operations recently said on the company’s third quarter results.
However, to compete with the global majors, Wipro is already working on an acquisition plan. Recently, in Davos, Wipro Chairman Azim Premji said the company is scouting for companies in Germany in the areas of managed services, and other niche IT services segments.
The IT services market in Europe is estimated at $217 billion in 2006 and is expected to reach $287 billion by 2010.