Low valuations trigger M&As among IT firms
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Low valuations trigger M&As among IT firms

By SiliconIndia   |   Friday, 31 October 2008, 11:04 Hrs   |    3 Comments
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Bangalore: Ongoing stock market crunch has turned to be advantageous for IT and BPO firms and many of such companies see this as the right time to seal merger and acquisition (M&A) deals. While a decline in valuation and market capital of most of the companies have provided long term investors with an opportunity to pick up blue chip shares, IT firms are taking this time to go ahead with buyout plans that have become less expensive now, reported Financial Chronicle.

"Valuations of several BPOs have fallen in the last couple of quarters. Companies used to demand about 10 to 11 times the EBITDA ( earnings before interest, taxes, depreciation and amortization) a few quarters ago but now valuations have come down to reasonable levels of five to six times the EBITDA," said, Partha De Sarkar, CEO, HTMT Global Solutions.

According to an Assocham report on M&A trends between January-May 2008, 22 deals were sealed worth $355 million. However, the valuation of deals for the five months ending December 2007 was $2.12 billion for 21 deals.

R.Srikanth, Executive Vice President and financial officer, mentioned, "Though we keep looking for strategic acquisitions all the time, this could be among the best of times. However we concentrate more on finding the right kind of company that will match our requirements."

Perot Systems, an IT solution provider is eyeing health care providers in Europe for buyouts. "Going by valuation alone, we would want to wait for some more time to seal deals because the present situation promises to reduce valuations even further. However, valuation is not our only concern. Finding the best fit is more important," said, Manish Jain, India head of marketing sales and communications, Perot Systems.

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Reader's comments(3)
1: M&a deals will continue to be sealed in near future at greater pace in view of decline in valuations. This the real time to seal such deals.
For a along term investor it is advisable to pick up blue chip shares from long term perspective.
Posted by:Dr S Z H ZAIDI - 31 Oct, 2008
2: Offshore software development is not going to be hurt as much as other sectors.

Offshore software development India is still having a bright future.
Yes but cost cutting is required so, these companies will higher less experience and less salaried people and will fire people who has fat salaries.It is now urgency if they need to meet their profit margins.http://letsnurture.co.cc/
Posted by:letsnurture - 31 Oct, 2008
3: it is like blessing in disguise for them. But a majority is taking the brunt.
Posted by:fahad - 30 Oct, 2008