M&As gaining momentum

New Delhi : 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."