Deals in France, Germany to capture new markets.
Bureau Report
BANGALORE: Indian outsourcing companies are on an acquisition spree in countries in Western Europe, to try and take advantage of new market that are conforming to the idea of trimming corporate expenses by going in for cheaper outsourcing options.
Companies such as Infosys, Wipro, Tata Consultancy Services and HCL Technologies, for whom success in continental Europe was limited to the UK and Nordic countries so far, are now actively looking to buy service providers in France and Germany, reported The Economic Times.
At least three planned acquisitions, each valued at under $50 million in Germany and another in France valued at a little over $100 million, are in the final stages, according to people with direct knowledge, said the reportr. They did not name the acquirer or the target as they are advisors to the deals and are bound by non-disclosure agreements.
“None of the Indian companies is in the top 30 list from a market share perspective in the IT services market in Germany or France,” Christophe Chalons, chief analyst and member of the board at Pierre Audoin Consultants, a French consultancy and market research firm, was quoted as saying. “An acquisition would be the quickest route for the Indian companies to get a local workforce and client relationships,” Chalons said.
Chalons said Germany and France together represent nearly half of the European IT services market, which industry body European Information Technology Observatory pegs at about 155 billion Euros. Currently, local service providers such as T-Systems of Germany, Atos and Capgemini of France and Tieto Oyj of Finland as well as IBM, HP and Accenture dominate this market, said the Times.
Europe contributes a little under 30% of the $76 billion in exports that the Indian IT-BPO industry is expected to clock in the year to March 2013, with most of it coming from the UK and Nordic region. Analysts agree that there is greater openness to offshoring in Europe not only due to rising sourcing maturity but also because of the prevailing profitability pressures. “Earlier, they could afford to say, ‘I’m a German, and I will do business only with a German,'” said a senior executive at a large Indian IT firm who did not want to be identified.
Already, acquisition activity has increased in Europe. Last month, Mumbai-based IT services company Geometric acquired German company 3cap Technologies GmbH for about $15 million. A month before that, Cognizant Technology Solutions acquired six companies from Germany’s C1 Group, and in September, Infosys bought Swiss consulting company Lodestone. “This gives us not only technology, but existing client relationships in Germany, which is critical,” said Manu Parpia, MD and chief executive officer at Geometric, said the Times.
Because of limited market reach beyond Europe, the smaller IT services companies in Europe are struggling to grow as their clients cut IT budgets and seek the same services at lower prices. For companies without any significant delivery workforce based in India or other lower-cost locations, this is impossible, the report said.