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Spotlight on Indian software firms’ acquisition plans

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CIOL Bureau
New Update

Anshuman Daga

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BANGALORE: Indian software companies' overseas acquisition plans have come

back into focus after a media report that sector giant Wipro Ltd. plans to

acquire a US-listed telecom consultancy.

Wipro and rival Infosys Technologies boast large market capitalisations and

are sitting on huge cash piles, which they can leverage to shop overseas,

analysts say.

"Typically, a US acquisition which helps firms carry out high-margin

work like consultancy services, something they lack, makes sense," said an

analyst at a domestic brokerage firm. Indian software companies, which derive

most of their business from the United States, have been on the prowl for some

time to acquire firms that can add marketing muscle and large clients.

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Wipro's market capitalisation at $8 billion and Infosys' at about $6 billion

humble those of some global rivals like loss-making Sapient Corp and Keane Inc. The

Times of India
daily reported on Thursday, citing unnamed sources, that

Wipro, the country's third-largest software exporter, planned to finalize this

week an all-cash deal to acquire The Management Network Group for $80 million.

The Kansas-based firm provides consultancy services to telecom, technology

and the financial services sector. The New York Stock Exchange-listed Wipro

declined to comment on the report but said it is routinely in contact with

various firms for acquisitions, but no final decision has been made.

Only a few Indian companies have actually managed to acquire overseas firms.

In September, India's No 5 software exporter, HCL Technologies Ltd., acquired a

51 per cent stake in the holding company of Deutsche Software, an Indian

subsidiary of Deutsche Bank AG, to expand its presence in the financial sector.

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"The issue is not whether these software firms have the resources to

acquire, but if they are able to get a readymade market to tap their large

offshore staff," the analyst said.

Infosys, India's No. 2 software exporter, has been scouting around for

acquisitions since it listed on the US Nasdaq less than three years ago.

Chairman N R Narayanana Murthy said this week Infosys is looking at acquisitions

of niche consulting firms and of those implementing packages, but gave no time

frame.

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Acquisitions in focus



Analysts expect local software players to strike deals in niche areas like
system integration and embedded software, which would allow them to break into

new markets. Indian software firms armed with US listings, serve a mix of

premier US-based technology, banking and telecom companies.

Most software firms blend services provided at client sites with offshore

work in India executed by engineers who can be hired for about one-fifth of what

their US counterparts earn. But as they try to boost work done from home and

offer more value for slowdown-hit clients, they need to begin to provide

high-end consulting work, analysts said.

"Indian firms realize that to compete head-on on a big scale with global

software players, they need to graduate to advising clients on what should be

done than working on whichever projects that come their way," said an

analyst at a European brokerage.

India's top five software exporters together globally employ some 50,000

software workers.

(C) Reuters Limited.

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