M&A's Golden Run

M&A
would be the perfect buzzword to epitomize the dynamics of the global IT
industry in 2005. The year was replete with myriad tales of acquisitions ranging
from high profile ones such as Oracle-Siebel, Oracle-i-Flex, Citrix-Netscaler,
Lenovo-IBM Personal Computing Division to relatively smaller ones such as IBM-NetSol
and Symantec-Bindview. The situation was no different for the Indian IT
industry-though M&A had started here in earnest two years back, what
differentiated 2005 was that it assumed a more secular nature.

While the top players
such as TCS, Wipro, and Satyam remained aggressive on the acquisitions front,
even mid-tier companies such as MBT, MphasiS, and Zensar joined the bandwagon;
and if this was not enough, most heartening was the active participation (some
would say even more than Tier one and two) of the smaller Tier three companies
on the global M&A marketplace. Though it must be mentioned that each
category was influenced by its own agenda.

Goliaths Set the Pace

Starting with the biggies, the companies of Indian origin with revenues in
excess of Rs 1000 crore, acquisitions implied niche additions to their bouquet
of offerings. Rather than make big-bang acquisitions, these companies were keen
on purchasing parts of companies or small firms and following the 'diamond in
the tiara' strategy. Having already achieved a significant scale of size,
looking at acquisitions to scale up was less of an influencing factor.

Barring Infosys and
Patni, all other players in this category indulged in M&A, though to a
varying extent, discounting Infy acquisition of IQ Financial treasury module
product. Patni was probably still assimilating the acquisition of Cymbal made in
2004. Though Cognizant did acquire US-based Fathom for $35 mn in cash and stock,
it has been kept out of the list since it is not of Indian origin. Though i-Flex
was active on the acquisitions front in the initial half of the year,
subsequently it got acquired by Oracle and is therefore, left out of this
report.

• TCS: Barring the
  CMC acquisition in 2001 and minor ones such as AFS and Phoenix, TCS has
  traditionally shied away from the inorganic growth route. However, all changed
  in 2005; it made a spate of acquisitions and strategic JVs, but all with a
  specific game plan in place. The idea was to emerge as the king of IT services
  and BPO for the BFSI domain-the agenda to grow verticalized platform-based
  expertise was expected to catapult TCS to the league of IBM and EDS. The
  acquisition of Sydney-based $22 mn core-banking solution vendor Financial
  Network Services (FNS) enabled TCS to offer core-banking solution globally and
  compete against Infy's Finacle and Flexcube from Oracle's i-Flex.
  
  FNS came with an
  install base of 116 banks spread over 35 countries; the client roster included
  three of India's major banks including SBI. This acquisition was carried to
  its logical conclusion when TCS and SBI in a 51:49 JV formed a new company
  called C-Edge Technologies. This JV is expected to leverage experience TCS has
  gained in FNS core-banking rollout in SBI and play a key role in FNS deployment
  in India and globally.
  
  If acquisitions
  bolstered the BFSI business in IT services, the fillip to insurance came from
  the BPO side. The acquisition of the life insurance and pensions BPO division of
  UK-based Pearl Group leading to a JV company based in Peterborough enhanced TCS'
  verticalized insurance BPO business in UK. Comicron also allowed the TCS Chilean
  team in Santiago to complement its existing team in Uruguay to serve not only
  the rest of the Latin American countries, speaking Spanish, but also the Spanish
  speaking market in the US-the Portugese speaking Latin America is served by
  TCS centers in Rio and Brasilia.
  
  Beyond BFSI, the
  merger of Tata Infotech into TCS probably marked the beginning of the
  consolidation of all the Infotech companies in the Tata group. In addition, it
  offered TCS strong SI expertise in the domestic defense and manufacturing
  sector.

• Wipro Technologies:
  
  Since acquiring NerveWire in April 2003, Wipro broke its dormancy on the M&A
  front by announcing two acquisitions within one week in December-Austrian
  chip-design firm NewLogic and US-based e-payment solution vendor mPower for $56
  mn and $28 mn respectively, in separate all-cash deals. The NewLogic acquisition
  further bolsters Wipro's R&D expertise and geographic advantage in
  Europe-with 32% of its revenues in FY05 coming from R&D and boasting of
  customers such as Infineon and Philips, this has been Wipro's key
  differentiator from TCS and Infosys. In addition, Europe contributed 9% of
  Wipro's revenue for R&D services in embedded products, a number expected
  to increase following NewLogic's customer base in Europe.

  2005 M&A Dossier For the Tier 2 (Rs 300-1000 crore) Companies
  Nature of Deal	Deal Financials
  MBT
  Acquired Axes Technologies	$54 mn in an all-cash deal
  MphasiS
  Acquired Princeton Consulting	$14 mn all-cash deal
  Acquired Eldorado Computing	$16.5 mn all-cash deal
  Zensar
  Acquired OBT Global	All cash deal but size of transaction not revealed

  The acquisition also
  gives Wipro the intellectual property, services, and the expertise in the
  communications R&D business with NewLogic's cores being used in complex
  wireless applications such as WLAN and Bluetooth. This enables it to compete
  directly with QualCore, a semiconductor design services company with major
  operations in India. Similarly, the mPower acquisition brings to the Wipro
  stable deep domain expertise in the e-payment space, an offshore arm in Chennai
  and a blue-chip client like MasterCard. The deal to acquire the $18 mn
  Princeton-based mPower also involves Wipro taking a 100% stake in MPACT
  Technology Services, a JV between MasterCard and mPower.

• Satyam: With the
  acquisition of Citisoft, Satyam positioned itself as a significant global player
  in business and technology consulting services arena for the Investment
  Management Industry. With a client base of more than 75% of the top 50 global
  asset managers and multi-national presence in Boston, London, and New York,
  Citisoft enables Satyam's Financial Services Group (FSG) to effectively tap
  the $35 tn investment management segment. On the M&A front, equally
  significant for Satyam was its final exit from Sify; though it did not acquire
  any other company in 2005, strategic alliances were the order of the day-these
  were forged with Merdian Systems, Miebach Logistics, IONA, and POSC amongst
  others.

• HCL Technologies:
  
  Though HCL has been following an aggreesive M&A strategy the last two years,
  2005 did not witness much activity except the acquisition of AnswerCall Direct,
  a Northern Ireland-based contact center, for Rs 29.4 crore. On the IT services
  front, HCL acquired the remaining 16.3% stake in HCL Enterprises Solutions (HES),
  its joint venture with US-based Computech, to make it a wholly owned subsidiary.
  The company is now fully owned and managed by HCL Technologies (Illinois). The
  acquisition enabled HCL Technologies to gain a strong onsite presence in the US
  ERP market.
  

   

  2005 M&A Dossier for the Tier 3 (
  Nature of Deal	Target Company History	Deal Financials	Strategic Implications
  KPIT Cummins
  Acquired SolvCentral	This Washington-based BI solution vendor grossed revenues of $3.5 mn	$2 mn in cash and stock	Strengthens KPIT's BI practice by creating a new LoB and bolsters its US presence
  Acquired Pivolis	A Paris-based company providing offshore consulting services using Agile Offshore Software Development Methodology And grossing a revenue of 3.5 mn	€1.75 mn comprising 50% cash and 50% stock	Strengthens KPIT's presence in the BFSI vertical and opens up the French-speaking European market
  Tata Technologies

   

   

  2005 M&A Dossier for the Tier 3 (
  Nature of Deal	Target Company History	Deal Financials	Strategic Implications
  KPIT Cummins
  Acquired SolvCentral	This Washington-based BI solution vendor grossed revenues of $3.5 mn	$2 mn in cash and stock	Strengthens KPIT's BI practice by creating a new LoB and bolsters its US presence
  Acquired Pivolis	A Paris-based company providing offshore consulting services using Agile Offshore Software Development Methodology And grossing a revenue of 3.5 mn	€1.75 mn comprising 50% cash and 50% stock	Strengthens KPIT's presence in the BFSI vertical and opens up the French-speaking European market
  Tata Technologies
  Acquired INCAT Technologies	This $120 mn UK-based vendor offers engineering and design services as well as PLM products and services	Rs 416 crore cash deal	Bolsters Tata Technologies offshore capabilities in engineering automation with its high-end onshore strengths and brings customers such as DaimlerChrysler, Ford, Lotus, Grumman, Honda, Magna, Steyr, and Boeing
  Aztec Software
  Acquired Disha Technologies	This Rs 14.14 crore company was providing independent testing services	Around $12 mn	<p class="Boxtext" style="margin-top:0in;margin-right:4.0pt;margin-bottom:0in;</p>