IT Acquisitions: Why All Are Heading Europe?

Europe has been in an economic mess for long and is still reeling under bouts of uncertainty, yet there is something about the region that is luring the outsourcing industry towards it. ISG reported that in the third quater of 2012, the region accounted for the highest number of mega outsourcing deals. And numerous deals were up for renewal.

With a spate of acquisitions, it's quite evident that Indian service providers have their eyes set on Europe. HCL's acquisition of Axon, Infosys's acquisition of Lodestone and Cognizant's acquisition of 6 C1 group companies are some of the most prominent acquisitions in the last few months.

It is interesting to see what is driving the trend for acquisitions in Europe, despite economic uncertainties prevailing in the region.

One apparent reason is the rising preference for nearshore outsourcing. In a recent interaction, Anupam Govil, Partner Avasant commented, "While rising costs, attrition and perceived risks are inhibitors to offshoring, the greater impetus is coming from increasingly sophisticated and mature providers offering Onshore and nearshore delivery." Also certain areas like agile software development, mobile and Social media application development require more closer connectivity between the organization and the service provider. Not surprising that most of the acquisitions that happened off late are in the area of high value services like Enterprise applications.

To gain a faster entry into the nearshore market, acquisitions are being seen as a preferred route. Yugal Joshi, Practice Director, Everest Group, says, "Europe (apart from UK, which was already using Indian providers) is opening up to Indian providers. These providers believe Europe requires larger nearshore presence and lot of cultural knowledge (especially non-English countries). Therefore, leveraging acquisition to build a scale of operation quickly."

He adds that even the target companies are keen on such acquisitions as they usually find it difficult to grow in their traditional market and gain from getting acquired by larger companies that can leverage a global delivery model.

The slew of acquisitions is not stopping here, it seems. From our year end interactions with leading Indian service providers we could sense that 'Europe' was the hot spot in their strategy plan for the year.