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IT space to see 50 percent rise in M&As
By siliconindia
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Saturday, 14 June 2008, 01:23 IST
Mumbai: Experts in the IT industry estimate as much as 50 percent rise in merger and acquisition deals in the domestic IT industry over the next 12 months. This is because of a gradual erosion in valuation of mid- and small-sized IT and IT enabled services (ITeS) firms on the stock markets due to rupee fluctuations and a U.S. slowdown, reported Business Standard.
"There will be a 50 percent growth in value for merger and acquisition deals in the domestic space of the IT and ITeS industry," says CG Srividya, partner, specialist advisory services, Grant Thornton. In 2007, as many as 59 pure merger and acquisition deals took place in the domestic IT and ITES space, together valued at $370 million (around Rs 1,550 crore). The figure, accordingly, is expected to be slightly over Rs 3,000 crore.
She said, "The cost advantage for domestic IT and BPO companies has reduced in the last two years, especially with salary levels increasing and rupee appreciating against US dollar." On an average, there has been a 15 percent rise in employee's salary in last three to four years. And the value of rupee against the dollar appreciated from its lowest level of Rs 46.9 in July 2006 to Rs 39.25 in October 2007. On Wednesday, rupee stood at 42.98 against the U.S. dollar. There are around 250 IT and ITeS firms listed on the Bombay Stock Exchange -second largest industry after the non-banking financial sector and the U.S. is the major market for over 95 percent of these firms. Out of these, around 220 firms have a turnover of less than Rs 250 crore and are considered to be small-sized firms.
There are about 30 firms with an annual revenue between Rs 250 crore and Rs 2,000 crore, which are considered to be mid-sized firms. Especially these firms are feeling the heat.
"Mid-cap consolidation will take place amongst domestic IT companies," said Ranu Vohra, managing director, Avendus Advisors, a leading investment banker in the IT and ITeS space. However, the firm estimates the total merger and acquisition including the inbound, outbound and pure domestic deals to grow at 15-25 per cent in 2008. For the ITeS industry, it estimates a 15-20 per cent growth in the same period.
