Acquisition strategies and challenges for Indian IT industry

Abstract

After catching up with manufacturing and services growth stories, India is fast catching up in the knowledge industries. In addition to growing organically, Indian companies are very eager to grow inorganically and are pursuing the acquisition route very seriously. In this context, this report attempts to analyze the key motives of acquisitions for knowledge based Indian companies and the critical valuation parameters. Also the report covers the key challenges in this acquisition route faced by Indian companies and proposes a comprehensive framework for identification, valuation, integration and monitoring strategy for acquisition in the IT industry. Based on the past trends and future outlooks in the Mergers and Acquisitions space in the Indian IT industry, this report tries to analyze the strategies of the large and small players in the Indian IT industry and concludes with the prediction of how things might shape up in the near future in the industry. The key observations and predictions are as follows: Ø The large players seem to be acquiring niche capabilities to expand the service range and geographic presence. Thus, they want to become a one-stop shop for their customers across the world. The small niche players mainly outside India are the key targets. ØSome of the mid-tier firms are trying to grow big in the differentiated sectors each one has chosen for growth. These companies are acquiring and will continue to acquire to add more to their customer base and intellectual property in the specific sectors. ØSome more are trying to consolidate in size by acquiring other mid-tier players in India or small and mid-tier firms outside India. As US and Europe markets try to recover from recession, a lot of companies in these markets become attractive in terms of valuation. ØAlso the mid-tier players are attractive targets for the MNCs keen on expanding their India footprint to take advantage of the availability of skilled resource pool at a lower cost. They can also leverage the global experience of Indian companies. Companies from US and Japan are actively scouting for the right targets in India.