Deal season for mid-sized Indian IT companies

22 April 2006

Till last year, most software industry analysts had been raising questions about the long-term survival of mid-sized Indian IT services companies. Their performance had been highly erratic from quarter to quarter and they were struggling to maintain growth even as much larger companies were growing rapidly.

These companies suffered heavily in the slump that followed the collapse of the internet bubble. Demand for services slowed down significantly and stock prices crashed. By the time the cycle turned and demand picked up, the mid-size companies found themselves beleaguered by the larger companies, unscathed by the shake-out, better equipped to win customers.

However, over the last one year these companies have become potentially hot acquisition targets for global IT majors like IBM, EDS, CSC, Cap Gemini, etc. Some large deals have already been announced and many more are expected to follow as the IT and BPO services industry goes through a phase of consolidation.

The rapid growth of Indian IT service majors like TCS, Infosys, Wipro and Satyam over the last several years is changing the dynamics of the global IT services industry. These companies have matured and gained significant size, enabling them to bid for larger overseas projects, once the exclusive domain of global majors.

As a result, the global majors are being forced to fight back; they are taking the battle to Indian shores by scaling up their Indian operations. Shifting a large part of their software development and support operations to India would help in driving down costs and compete better with the Indian majors.

IBM and Accenture adopted the strategy of organic growth in India and have built up large-scale operations in the country. IBM was the first to attempt large scale expansion in India and went on to acquire Daksh to expand BPO capabilities.