Anshuman Daga
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.
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.
"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.
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.