Mergers and acquisitions are the flavor of the season

The happiest people these days are the merchant bankers, especially those who

focus on the IT sector. And they have every reason to be happy. Never has this

sector witnessed so many mergers and acquisitions as has happened in the last

six months.

Interestingly, this trend was started by probably the most unlikely candidate-Ingram

Micro-in September last. This distribution major-not exactly known to play

the M&A game-startled everybody when it announced the acquisition of Tech

Pac.

Since then, there has been a virtual deluge out there. Things peaked with the

merger of IBM's PC division with the Chinese conglomerate Lenovo Group. This

was followed shortly by the Symantec-Veritas merger.

Closer home also we are seeing an increasing trend on the same lines as is

happening worldwide. The Tech Pac acquisition by Ingram had its repercussions in

India also with not many encouraging signs on the ground level. Immediately

after came the announcement that Taiwanese major Synnex had acquired around 36%

stake in Redington, another distribution major.

Interestingly, the M&A activity in India is hotting up more on the

distribution and channels front. Apart from the three biggies-Ingram, Tech Pac

and Redington-this bug has now hit the next rung of distys also. Just last

week, Rashi Peripherals announced the acquisition of Zeta Technologies-a

smaller disty with footprints mainly in the west.

Another Mumbai-based second rung disty with an impressive portfolio of

products is also known to be in the market for a possible merger. In fact, this

disty is supposedly more than keen to be acquired and has been scouting for

somebody for quite some time now.

And this trend is certain to gain momentum is the coming months-especially

amongst the distribution community. Between them, the three biggies-Ingram,

Tech Pac and Redington-have a near total dominance of the market with an

expected Rs 8,000 crore business being transacted in the 2004-05 fiscal. This

leaves the second rung of distys with very little to chew on. As the

distribution business rings in extremely low margins, the only way to survive is

to have a big topline so as to make the business viable. Otherwise, there is no

way these smaller guys can survive and prosper.

Despite the fact that in the last one year, three new distributors-Almasa,

Innovative and Quantus-have joined the pack, an equal number from the older

lot would no longer be in the picture. So, what's the lesson from this? Play

the M&A game and prosper. Otherwise, things may not be exactly rosy.

Asim Raina