NEW DELHI, INDIA: A study by Everest Research Institute has shown that information technology outsourcing (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 percent 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 YoY 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 percent and 31 percent of deals respectively. 

Another perspective that emerged from the study is that the average deal size in Europe ($415 million) and in APAC region ($325 million) is higher than that in North America ($221 million). Gaurav Gupta, Principal and Country Head, Everest Group stated, "ITO suppliers are purchasing larger firms in EMEA as compared to other geographies, which explains the highest average acquisition price there. 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 indicated that the spurt of inorganic growth among ITO suppliers is not due to the economic slowdown only.

Shiraz Ritwik, Research Director, Everest Research Institute said, "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."

Elaborating on specific implications of the study findings on India, Gaurav said, "India has been strategic both from a standpoint of acquisitions as well as acquirers. While eight of the total 114 M&A deals occurred in India, as many as nine 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."