It's Happening in India Too

Darwin's Law seems to be currently guiding the dynamics of the IT industry
globally, as we witness industry consolidation happening in massive proportions
by means of acquisitions. Oracle's acquisition of Peoplesoft, Symantec
acquiring Veritas or Lenovo acquiring IBM's PC division all portent towards
one single trend-in an increasingly competitive market, consolidation will be
the buzzword, as only the fittest of them all would remain standing once this
current spate of acquisitions are over.

The last couple of months have witnessed a number of acquisitions by Indian
IT companies too-after all how can they be insulated from the global
phenomenon? Since none of them have been as high profile as these global ones,
perhaps they have missed out on their share of deserved publicity. However, that
does not imply these acquisitions have any less business significance-in fact,
the inorganic growth route adopted by companies like HCL Technologies and i-flex
could redefine the entire Indian software industry paradigm.

Interestingly, three types of companies have gone for the acquisition route
in the last two months. The first instance involves software behemoths like TCS
who is looking at inorganic growth as a means to enter the league of the IBMs
and EDSs-its stated goal to be amongst the top 10 SIs by 2010. Next, we have
the Tier 2 companies like HCL Technologies and i-flex who are desperate to reach
the level of the top Indian troika-TCS, Wipro and Infosys. Lastly, smaller and
companies like Zensar, Techspan and UBICS are looking at inorganic growth to
bolster both their toplines and bottomlines. Though the software services
segment is again growing at a fast clip, it is mainly restricted to a handful of
players-many of these smaller companies are either witnessing a slowdown in
their topline or on their net profit growth.

Last month, TCS acquired a 10% stake in Philippine Dealing System Holdings
Corp (PDS) for $0.9 million-the company's first acquisition post IPO.
Incidentally, TCS has also bagged a $3 million contract from PDS subsidiary
Philippine Depository & Trust Corp (PDTC) regarding implementing a
depository, registry, clearing and settlement system for the equities and fixed
income securities market in the Philippines. With Asia-Pacific contributing
17.6% to TCS's total revenues of Rs 3783 crore for H1 2004-2005, the PDS
acquisition is likely to further bolster TCS position in this region.

i-flex acquired the US-head quartered Equinox Corp with its back offices in
Gurgaon as well as 33% stake in a French treasury software specialist company,
Login SA for $5 million each.

Both these companies have in-house IP-based products with Equinox having
products such as SmartAcquisition and StopLeakage, and Login owning Acumen.

The Equinox acquisition gives i-flex a running start in the BPO business-an
area where many of the IT services companies have already made rapid strides.
Its platform-based services approach also helps i-flex's product strategy as
well as allows it to grow into new geographies, which are difficult to tap on
its own.

The other noteworthy movements have been made by HCL Technologies-first it
acquired from Rao Insulating Company the remaining 23% stake in Bangalore-based
Shipara Technologies, a company focusing on high-end engineering and technology
areas such as aerospace, embedded systems, engineering services and
communication technologies.

Subsequently, HCL Technologies Bermuda, a wholly-owned subsidiary of HCL
Technologies, has hiked its stake in Aalayance to 51% at a transaction of $1.9
million. Aalayance is a business integration specialist with expertise in
integrating and extending enterprise systems and processes. Aalayance's
customer base comprises industry leaders in the telecom, healthcare and
financial services domains. The current annual revenue run rate for the company
is over $5 million. The investment is part of HCL's initiatives to build
expertise and significantly scale up its enterprise application practice.

Even smaller players have not remained immune from the acquisitions bug. The
$100 million consulting and tech firm, Headstrong, headed by HCL co-founder
Arjun Malhotra has acquired an enterprise software company, Metamor in the US.
This deal is expected to make Techspan India, a subsidiary of Headstrong, the
offshore arm of Metamor US. This deal provides Metamor with an offshore
development, maintenance and support arm in Techspan India. In turn, Metamor's
ERP portfolio is expected to strengthen Headstrong's manufacturing practice,
which accounts for over a quarter of the company's business. A service partner
of SAP, Metamor boasts of over 60 projects in industries like manufacturing,
distribution, technology, CPG and retail.

Techspan India has also acquired Bangalore-based Elind Computers, a software
provider focused on the global capital markets industry. The acquisition
equipped TechSpan with an array of customizable internal matching
services/components for investment banks and prime brokerages to consolidate
order-management systems, cross orders internally, and route those orders
appropriately. The company's flagship STRIDE suite of products includes order
management and market making, risk management and reporting functions and has
several takers in various stock exchanges. The company's client list includes
TradingLab, Milan and Creditex, New York. Incidentally, Headstrong itself merged
with Techspan in 2004 in a deal worth over $20 million. The combined entity has
revenues of over $100 million, employing over 1,100 people.

More interestingly, UBICS, the software company belonging to Vijay Mallya,
acquired Pittsburgh-based Integral Strategies, a leading provider of diversified
IT consulting services, and the assets and business of Ventive, LLC, a provider
of web-based enterprise solutions for staffing and consulting organizations.

Another mid-sized company likely to bite the bait soon is Zensar Technogies
that expects to acquire a SAP services vendor/financial services specialist for
around $10-15 million over the next one month. More are likely to follow suit-acquisitions
seem to be the flavor of the day, at least for the time being for the Indian
software companies.

Rajneesh De