Global tech firms eye Indian mid-tier IT cos
Global technology players plan to gain foot hold via acquisitions as rising offshoring and growth prospects making mid-tier IT firms more attractive; PE firms also keen on acquisitions in this space
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Bengaluru: Rising offshoring and increasing growth prospects of mid-tier IT firms are prompting many foreign technology companies to gain foot hold in the Indian IT industry through acquisitions. Even a clutch of private equity (PE) investors including Bain Capital, Carlyle Group, KKR & Co, Baring Asia are upping the ante to cash in the emerging opportunities.
Sources in the know said that French firm Teleperformance is actively looking at expanding its portfolio by acquiring a mid-tier IT services firm in India. This will enable the company to gain foothold in the IT services space apart from its BPM (business process management) capabilities apart from providing a large offshore delivery base.
During the pre-pandemic period, Japanese technology firms including NEC, NTT Data, Hitachi and Fujitsu were actively scouting for potential acquisition opportunities in the country.
"India is a critical offshore delivery market for the global IT industry. So, European and Japanese technology companies are looking for acquiring mid-tier firms in India for quite some time now.
What has increased their interest level is the rising growth prospects of Indian mid-tier companies during this pandemic period. Also, increased offshoring (more project work comes to India) makes this space attractive," said a person familiar with the acquisition bids for Hexaware. Currently, PE firm Baring Asia is evaluating options to sell its stake in Hexaware Technologies. According to persons familiar with the development, PE majors including Carlyle, Bain Capital, KKR& Co are in the fray for buying out stake in Hexaware. Also, French BPM company Tele performance has also submitted bid for acquiring Hexaware Technologies.
Though the final bid is yet to be selected, the buyout bid is likely to be in the range of $3 billion, sources said.
Against the backdrop of a booming demand, Indian IT industry has already seen some big ticket deals this year. Hinduja Global Solutions- the BPM services provider promoted by Hinduja Group, had announced the sale of its healthcare services business to Baring PE Asia for $1.2 billion.
Similarly, Blackstone in April has announced to buy an additional 26 per cent stake in the mid-tier IT services firm Mphasis Ltd for Rs 8,262 crore (around $1.10 billion). Such deals reflect the rising interest of PE majors in the Indian mid-tier space.
Indian mid-tier IT companies including Mindtree, L&T Infotech, Mphasis, Coforge, Happiest Minds, L&T Technology Services, Tata Elxsi, Persistent Systems have seen an increase in their valuations in the last year owing to higher revenue growth numbers than their larger peers.
Also, strong deal pipeline and guidance for double-digit growth rate put the mid-tier IT companies at a position of sustainable growth for next 2-3 years.
Moreover, all the mid-tier IT companies have witnessed larger revenue share from offshoring work (projects implemented from India) in the last three quarters. This trend is likely to support the operating margins of mid-tier IT firms, which is facing headwinds from hike in wage cost and other expenses.