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Monday, December 2, 2002
Feature

Mergers and acquisitions may be the way out
Imran Qureshi

MERGERS and acquisitions, or M&A, could become the way out for several mid-sized and small companies as the clones of the biggies get clobbered in a possible shakeout in India’s IT industry.

Mascot Systems’ planned acquisition of US-based eJiva and Hyderabad-based Aqua Regia to drive business growth is being seen in industry circles as a logical step towards meeting the demands of the uncertain global business environment.

The upswing in the fortunes of the biggies like Wipro and Infosys — dramatically raising the graphs at stock exchanges — and the unlisted but biggest of them all TCS has not meant only crumbs for the mid-sized and small but focused, differentiated and experienced companies with domain expertise.

But to survive comfortably in the global market of uncertainty, top executives of mid-sized and small companies have begun serious discussions on assessing each other’s strengths and weaknesses, including the tricky issue of valuation, for mergers and acquisitions.

"You will find a lot of interesting combinations happening in the next six months. Customers are not going to give business because of cost or range of services. They are looking at focused companies because they want to play it as safe as possible in the current environment," Anand Sudarshan, CEO of Planetasia, Microland group, told IANS.

"There is a 180 degree change in attitude. Customers are looking at long-term relationships. So the question is: Can the other guy meet our requirements for more than a couple of years?" says B. Ramaswamy of Sonata Software.

"Basically, customers are looking for a comfort level like how many persons can this company throw at the problem. It is the quality of the persons that determines their outsourcing relationship," adds V. Ravichandar, MD, Feedback Services.

"The current situation only means that the small ones are getting clobbered and a shakeout is going to happen sooner than expected. The synergies and the horizontal breadth of services on offer are what the customer is looking at now."

Adds Ananth Koppar, CEO, Kshema Technologies: "The boutique companies will slowly start dying, though none have died yet. But the fact is that many are reducing their numbers drastically, some from 100 to 50. The clones of the big ones will not survive."