M&A and PE deals are likely to cross $4.5 bn in 2015
Sadananda Mohapatra | Mumbai October 27, 2015 Last Updated at 18:08 IST
By end of 2015, more number of merger and acquisition (M&A) deals are expected to take place in the Indian information technology (IT) services sector. The optimism stems from the fact that the market has been witnessing major activities in M&A space rather than attracting fresh investments from private equity firms.
According to VCEdge, the financial research arm of VCCircle, between January and September 2015, investments and M&A deals in the IT sector (does not include e-commerce deals) in the country topped $3.5 billion. As compared to this, M&A deals worth $2.5 billion happened during the same period last year. By end of December this year, the total amount could top $4.5 billion as more consolidations are likely, according to investment bankers and industry experts.
“Depending on deal closure and timing, M&A and investments deals of an additional $1 billion in enterprise value may happen till the end of 2015,” said Puneet Shivam, Executive Director and Head, US of investment bank, Avendus Capital. “There are a few fund-led deals that are underway which, if they close, make them a larger share of deal activity than the first three quarters of 2015,” he added.
In past one month alone, three such deals — Blackstone-Serco, Apax-Zensar and Infogain-Blue — Star have taken place which totaled more than half a billion dollar in deal size. Industry officials said, the consolidation would continue for companies who are not ready with future technologies.
“I think the need for consolidation has always been there and will continue. Companies with superior business models like TCS, Infosys, and Mindtree, Zensar in the mid-cap for example, will continue to grow and flourish independently. At risk are companies who do not have a clear growth strategy particularly in areas like digital transformation,” said Ganesh Natarajan, vice chairman and chief executive of Zensar Technologies.
According to Avendus Capital, 2016 is likely to remain active from deal activity perspective as Indian IT majors are keen to add digital capabilities, get front-end capabilities in major markets as well as add to their vertical depth. This is likely to drive significant acquisitions.
“India-centric companies some of which are building capabilities around emerging technologies such as analytics, automation, platform-based solutions, etc. will continue to attract investments. Also some of the mid-sized IT/ITeS companies may e acquired as consolidation plays,” said Shivam of Avendus.
Added Sashi Bhusan, Senior Vice President, Research, HDFC: “Some consolidation is likely, but the overall PE deals in the IT sector is low as it is a cash-rich sector.”
Originally Published in Business Standard on October 27, 2015