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An analysis from Indian perspective
PGSEM, IIM Bangalore
Aseem Mudbidri (2008015)
Bodhisatya Sarker (2008017)
Naveen Kumar (2008040)
Satyajit Paul (2008046)
• Problem Statement
• Global & Indian Tech Acquisitions
• Strategic Objectives for Acquisitions
• Nature of new start-ups (IT Companies Taxonomy)
• Product & People
• Comparison with Israel
• Evolution of Tech start ups in India
• Country Positioning
• What goes for Product Development
• Challenges faced by IT Product Companies
• Challenges faced by IT Services Companies
• How M&A is viewed by Mgmt and by Investors
• Concluding Thought
Strategic Leadership & next phase of
Indian IT Industry
• Why Big Indian
Firm(s) are not
• Why some of the
Indian Tech start
ups are not getting
Global Technology M&A
Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10
Deals 184 363 347 315 361
QoQ Change 12.2% 97.3% -4.4% -9.2% 14.6%
(MUSD) $23,265 $24,553 $21,062 $12,765 $37,236
QoQ Change 244.2% 5.5% -14.2% -39.4% 191.7%
Median Value $40.2 $20.0 $25.5 $30.0 $71.2
QoQ Change 1.6% -50.2% 27.5% 17.6% 137.3%
Indian Tech M&A
Total Tech Acquisitions In India (Year 2004 – 2009 )
Acquisitions of Indian Tech Cos •Total outbound M&A [By Indian Co] - $13.276 b
•Total No of Tech Acquisitions [By Indian Co] – 287
Total Deal Amount (Million $) # Deals
•Total M&A - $20 b
•Total Tech Acquisitions – 333
$2,370.00 Infosys -3
$1,167.00 TCS -6
24 12 26 29 26 17 13
2004 2005 2006 2007 2008 2009 2010-Q2 Year Acquisition Details Amount (million $)
Jan-05 Oracle acquires i-flex(I) $2,000.00
May-07 CSC acquires Covansys(i) $1,300.00
Nov-06 Capgemini acquires Kanbay(I) $1,250.00
•Total Tech M&A(04) [of Indian Co] – $ 12.6 b Dec-10 Aricent by PE Firms $1,050.00
•Total No of Tech Acquisitions [of Indian Co] -147 Feb-07 Keane(I) by Caritor $854.00
Dec-08 Axon by HCL (I) $682.00
• 3 acquisitions till date by Big 6 companies Apr-09 Satyam C S (I) by Tech Mahindra $605.00
•More than 95% are IT services/ITES companies Aug-07 Infocrossing by Wipro(I) $600.00
Oct-08 TCS(I) acquires Citigroup G S $505.00
Nov-04 GENPACT by PEF firms $500.00
Note: Above data is based on the published data for the period of 2004 till 2010
Source: VentureIntelligence - http://www.ventureintelligence.in/deals/meracqview.php
Global Movers and Shakers
“It's crazy to say you will only
grow through [in-house]
Acquisitions % of US Rest of the Acquisitions Indian innovation. It's bizarre that
Company since 2000 Companies world Number Acquisitions
Google 76 76.32% 18 17 None there's a stigma to buying
HP 56 75.00% 14 2 None something rather than
Cisco 91 90.11% 9 3 None
Daksh, building it yourself.“
IBM 93 72.04% 26 8 Network Sol - Larry Ellison to New York Times in
Microsoft 95 71.58% 27 0 None
Oracle 51 5 i-flex
“Top 10 technology companies are sitting on a cash reserve of US$258 billion. With
cash reserves of this magnitude….. they are well-positioned to execute on attractive
deals when the timing is right”
-Joe Steger, Global Technology Transaction Advisory Services Leader at Ernst & Young
“Google to step up buys as internal projects falter” – Economic Times on 12-Aug-2010
“They are trying to keep up with a rapid rate of innovation in the online world” - Clay
Moran, as Analyst at Benchmark at Boca Raton Florida.
Various Drivers Behind Tech
Common Strategic Objectives for
Technology Company Large Company
Access to complementary products
Acquire key technology
Access to working capital Eliminate a competitor
Best liquidity event for founders and
Expand or add a product line
Best and fastest return on investment Gain creative talent
Faster access to established Gain expertise and entry in a new
Improve distribution capacity Gain a time-to-market advantage
More rapid expansion of customer
Increase earnings per share
M&As are like Waves
To acquire a latest technology, companies • Mobility continues as growing deal driver
either do - • Technology-enabled solutions in health care information
• In-house development • Smart grid technology
• Acquire some Tech company having the
Traditionally Popular domains
technology expertise. • Networking
• Social Networking
• Identity Management etc.
VERTICALS HP Microsoft IBM Oracle Nokia SAP
Mobile Palm Mobicomp, AppForge Symbian Sybase
Cloud iBrix, 3Com (Azure) Amazon EMC, Sun Coghead
Computing WebServices, Microsystems
Cast Iron Systems,
Services EDS - PwHC CSC (predicted)
Business Cognos Hyperion Business
Intelligence Solutions Objects, Sybase
Taxonomy of IT Companies
Business/IT Consulting Accenture
Software Project/ IBM Global Services,
IT Services IT Implementation Wipro,
A Enterprise S/W
Microsoft, Oracle, SAP, IBM, HP
Shrink-Wrap Microsoft, McAfee eBay.com, IndiaMart.com
Media, Entertain Microsoft, Sony Goods
ment, (eCommerce) Capitaline.com
Games Information Goods makemytrip.com,
Companies E B bharatmatrimony.co
Web-based Salesforce.com redbus.in
Enterprise Apps Successfactors.com Makemytrip.com
SAS Ec2 (Amazon)
Baazee.com(eBay), Zoho, i-flex,
bharatmatrimony.com, Skelta, Fusionchart,
bigadda.com Tally, IndiaMart, naukri.com
Type of Customer
Leaders behind the Start ups
Company Founder Profile Category
BE -1993 - 1997
iXiGO.com - India's #1 travel search engine Dharmendra Yashovardhan HCL Perrot Travel & Hotel
IIT Kanpur: 1997 - 2001
Aloke Bajpai INSEAD Travel & Hotel
IIM A: 1990 - 1992
MakeMyTrip.com Deep Kalra Leadership in the Category Travel & Hotel
bharatmatrimony.com Leadership in Category Matrimony, Property,
(IndiaProperty.com,ClickJobs.com) Murugavel Janakiraman MCA, Masters in C Sc Health, Jobs
naukri.com Founder 1995
(jeevansathi.com,99acres.com, naukrigulf.com, IIM A 1989 Jobs, Matrimony, Property, Jobs,
brijj.com,quadranglesearch.com) Sanjeev Bikhchandani Leadership in category Professional Networking
BE - 1996 - 2000
lifeblob.com Pranav Bhasin Follower Social Network
BE - 2001 - 2005
lifeblob.com Rakesh Rajan Follower Social Network
BE: 1993 - 1997
voicetap.in Mrigank Tripathi INSEAD - 2005 Social Network
IIT B 1985, MS.
Skelta software Sanjay Shah Serial Entrepreneur Enterprise Software
BITS Pilani, MS
12+ years in IT while founding
i-flex Rajesh Hukku Recognized the Opportunity Enterprise Software
Tally Shri S. S. Goenka Industrialist, Early entrant (1986) Enterprise Software
Product Cos- Insight into the product
• Lack of IP generation
• Many of them are in
Information goods and Web based
Networking. e.g. there are
40+ websites dedicated for
Travel and tickets.
• Most of the entrepreneurs
have IT background or with
Management education with
approximately 5 – 10 yrs of
• Many of them are driven by
passion and less of industry
Increased activity in the Indian software product industry is being
witnessed only after three decades of its evolution
History of Indian Software Product Business
Early Stage Growth Stage Acceleration Stage
Softek Compilers Flexcube (i-flex) mChek
Instaplan TableCurve (Cranes) Arc (Manthan)
Muneemji Nikira (Subex) VIS (3d SOC)
Easy Acc Tally IViZ
Number of Product Businesses
Subex 3D Solid
Nucleus Tally Elitecore
Software Solutions InfrasoftTech Compulink Technologies More than 300
HCL Cranes startups in the
Kale last 4 years
TCS Ramco Polaris
Wipro Systems Newgen
Visionary companies built
compilers and application India excels in banking-
Softek software for local market specific products
Low 1980 – 1990 1990 – 2000 2000 – 2007
Source: Zinnov Analysis
Comparison between two emerging
economics – India vs. Israel
Microsoft 4 0
Google 1 0
IBM 4 2
Oracle 3 1
Cisco 3 0
Figures indicate the number of product companies acquired.
Determinants of Advantage - Israel
Factor Conditions 1) Government Subsidy
1) High Skilled Labor for R&D projects
2) Low cost 2) Programs to encourage
Related & Supporting Industries Firm Strategy & Rivalry
1) Government encouraged 1) Local competition among
bilateral and multilateral various IT firms in Israel to bring
international R&D collaboration about IP protected software
Reference: R&D Policy in Israel-An Overview and Reassessment – Manuel Trajtenberg
(Competitive Advantage of Nations by Michael E. Porter)
Embracing latest Technology (Computers)
US growth – 5% to 15%
Israel growth – 5% to 25%
Patents Filed & ICT Competitiveness
Patents filed - 2008
China Israel India
R&D Expenditures of Indian IT
majors are in the range of
0.3% to 1.3% of Revenue vs
Global range of 5% to 15%
Challenges for IT Products from India
Lack of VC
Lack of Business Lack of
Management Network and
Talent Global Access
for Indian Higher Entry
Smaller Base of
Barrier due to
Domestic Market Software MNC presence
Liabilities of Origin - India
Customer • Good Service Quality. Poor Product Quality.
Perception • Low Brand Value
Quality of • Risk averse culture. Lack of technological incubators.
Ecosystem • Poor Access to Financial Capital. Lack of VC funding.
• Lack of Management Talent with Global Experience
Familiarity & • Lack of Networking within the Industries.
Challenges in Indian IT Services Space
• Ever increasing pressure on the margin.
• Growing clout of MNC services firm(s) choking the supply as well as
• Other evolving low cost locations.
• Higher Employee turn out rate.
• Low or no differentiation.
• Higher expectations from investors.
• Currency fluctuation/appreciation.
• Reducing Govt. incentives.
• Growth for top companies seems to be unsustainable.
• Growth for Tier-II companies already hit plateau, now profitability
seems to be under threat.
• So, what was BLUE-OCEAN seem to becoming RED-OCEAN.
Indian Providers and MNCs Capabilities
MNCs Indian Providers
IBM, Accenture and Hewlett-Packard have India's top three IT firms each has a market value
large captives in India enabling them to move of between $18 billion-$27 billion and boasts a
Convergence global footprint.
more of their overseas work to these lower-
cost centers Cognizant Technology has bought the Indian
Oracle and Dell have snapped up targets to backoffice unit of UBS for about $75 million
grow beyond their core areas, while Xerox is HCL Technologies paid about 440 million pounds
buying Affiliated Computer Services for $5.5 ($720 million) for Axon, marking the biggest
billion to jump into the outsourcing sector. overseas acquisition by an Indian IT firm.
These companies have also made acquisitions TCS acquired Citi Global Services
that enable them to compete better , Comicrom, Phoenix Global Solutions, AFS etc
strengthening its BPO segment
Infosys acquired the BPO arm of Royal Philips
Cultural and integration risks associated with large
M&A are also a barrier and Indian firms are
unlikely to shed their cautious approach.
Why Indian Firms Shy from Large
M & A leads to
• High costs of synergy between both companies.
• High Risk for Large Investments.
• Post acquisition integration issues.
• Cultural differences.
Agency problem where the Indian IT firms focus on
quarterly profits instead of future potential profits to
keep the investors (shareholders) happy. Investments
will dent their earnings and affect stock prices.
Reference: Dubious Value of International Acquisitions by Emerging Economy Firms: The Case of Indian Firms
– Aneel Karnani
Stock Price Movements after M&A
- TCS acquiring Citi Global Services
Stock Price Movements after M&A
- IBM Acquisitions
IBM acquisition of Sterling
Commerce in 2010
IBM acquisition of Price water
House Coopers in 2002
Conclusion – M&A for Big Indian IT firms
Right now, Indian IT services businesses are able to grow
since there is local talent pool available (Organic Growth) at a
much lesser cost compared to acquiring another company
along with all its integration challenges.
However, considering global firms like IBM, Accenture are
moving down the value chain by leveraging the cost arbitrage
in India, we see small but focused Acquisitions of would be the
way to leap into the big league and gain more competitive
Conclusion - Product Companies M&A
• Currently, the Indian Product Companies are far from being successful as compared to Silicon Valley
– The products have less IP generation.
– Do not have solid customer base.
– No immediate ROI in sight.
Hence, top global IT majors will continue to overlook the Indian Product companies till our Product Industry
• An Entrepreneurial culture backed by industry insights needs to be cultivated.
• The Ecosystem should be in place where there is continuous encouragement for people to
• Watch out for emerging technologies.
• Look for missing pieces in the Big company’s product portfolio.
• Take the advantage of growing domestic market , build competence/capabilities and leverage it to
rest of the world.
• Last but not the least its innovation, innovation and innovation.
• It’s a win-win game for Indian IT Product as well as IT Services firms if proper synergy can be
• Invest for Future Growth, Indian IT Services majors need to take the opportunity of
emerging trends in technology in the form of Cloud based applications and
computing. Cloud computing is necessarily a disruptive in nature and Indian IT
firms need to take the advantage of this.
• Increase R&D expenditure, R&D expenditure as share of revenue needs to
• Make use of Local Markets, Startups Mid-size, need to focus on the local needs
(which are typically very high in scale), develop products and services and then take
the products to global market. We see good opportunity for such reverse-
• Leverage on the Engineering Prowess, Both Tech startups as well as IT majors
need to leverage on the product building capabilities of the engineers from the
MNC captive units.
• Leadership Matters, Finally, it is the leadership who needs to set the strategic
direction and follow the dream of “Think Big, Think Long Term”. Things take longer
and more painful to happen with product development companies. To have a
sustainable energy & passion to run the product business, you need to think big
and have the patience and perseverance to follow the long-term vision.
The statistics indicate that a start up Technology Company is
more likely to be acquired than it is to go public. Given that
reality, a start up Technology Company should invest the time
to identify the Large Companies that are the best candidates
to meet start up company’s strategic needs. It also should
identify the strategic objectives of those Large Tech
Companies and keep that data in mind during its business
- Fenwick & West