Comments on: Offshore Services: Whither Consolidation?

By: rajiv gupta

rajiv gupta — Fri, 12 Feb 2010 13:52:21 +0000

Centuries ago India gave ZERO to the western world , and since histroy repeats itself its again time we give ZERO again to the western world .

In my prediction Indian companies can literally acquire any company in the world in next 4-5 years and make them Zero – Atleast the inflated egos will be reduced to zero )

By: Krishna

Krishna — Fri, 12 Feb 2010 07:24:44 +0000

Basab, You could use some data. Take a look at the US public debt clock that reads $12.35 trillion and counting at the rate of $ 3.85 billion per day, loading each of its 308 million citizen with $ 40 K on an average. At this rate as Greg Pytellsays, the US borrow and spend solution is akin to an insolvent person who keeps on borrowing, as long as there is a silly lender out there. Obviously he has no intention to repay (not that he can, not with a China around) and when push comes to shove, declare a bankruptcy, write off the entire debt and start its financial life anew. I don't want to be an alarmist, but for the history of the collapsed dollar that can repeat itself, so long as it stays a recorded event from the past that a vexed Tim Geithner or his successor most likely turn to !

By: Krishna

Krishna — Fri, 12 Feb 2010 07:03:10 +0000

Basab, You could use some data. Take a look at the US public debt clock that reads $12.35 trillion and counting at the rate of $ 3.85 billion per day, loading each of its 308 million citizen with $ 40 K on an average. At this rate as <Greg" target="_blank">http://gregpytel.blogspot.com/2009/04/us-way-out…. Pytel says, the US borrow and spend solution is akin to an insolvent person who keeps on borrowing, as long as there is a “silly” lender out there. Obviously he has no intention to repay (not that he can, not with a China around) and when push comes to shove, declare a bankruptcy, write off the entire debt and start its financial life anew. I don't want to be an alarmist, but for the <history" target="_blank">http://www.commodityonline.com/news/History-of-co... of the collapsed dollar that can repeat itself, so long as it stays a recorded event from the past that a vexed Tim Geithner or his successor can turn to !

By: basab_prad13041

basab_prad13041 — Fri, 12 Feb 2010 04:08:19 +0000

Krishna – I won't argue whether the $ is headed down in the medium term or not. But if there was broad consensus on the dollar being overvalued, shouldn't it have been going down?

We may not have a shared view of where the dollar rupee is headed, but what we can say is that Indian companies have opportunities at both ends. If the dollar is strong, their earnings are strong and their valuations are better. If the dollar is weak, targets become cheaper. In both cases it helps if the stock market is firm which it has been.

But all said and done, TCS acquiring Accenture is a non-starter – a disaster, a shipwreck in the making. Why? That's a full post by itself.

By: Krishna

Krishna — Wed, 10 Feb 2010 08:00:39 +0000

Basab, my point is that there is a huge consensus that is building up regarding the southward drift of the $$ during the medium to long term before U.S.economy gets back on its rails. In that case, it would be conceivable to buyout American companies that may come cheap (a beginning has already been made by buying out the captives back home) because of the favorable exchange rate. The bargain could be as much as 30-40% in terms of cost of acquisition. So instead of TCS buying out a Firstsource or Infotech enterprises, it could think of acquiring an Accenture or a Cognizant before the dollar gets back its strength. May be it would seem a wildcard deal now, but TISCO (65th in the world steel rankings) did acquire a Corus (5th in that index) and Tata Motors bought out Jaguar Landrover. So the mood is why sweat hurriedly over *string-of-pearls* (a la Wipro) when you can indeed angle for the big one.

By: Basab Pradhan

Basab Pradhan — Tue, 09 Feb 2010 23:39:01 +0000

@nikilmittal

#3 is what this post is about.

By: Maneesh

Maneesh — Tue, 09 Feb 2010 17:23:59 +0000

I guess one of the common reasons for M&A (to add bulk) is to achieve economies of scale. Indian IT outsourcing is services business. In services industry, (compared to manufacturing industry) the economies of scale flatten out relatively fast. The profit/revenue per employee for a 10,000 employee company may not necessarily be better than a company with 5000 employees. After all its all about humans, not machines.
So a large company (Infy,Wipro etc) doesn't gain much by acquiring a smaller size company. Their own brand name is already so powerful, that they don't need much help in that department.

By: Basab Pradhan

Basab Pradhan — Tue, 09 Feb 2010 16:47:20 +0000

Krishna,

I think the broader point you are making is that stability is required for M&A activity to grow. I think the markets are as stable as they will be as are major economies that provide revenues to the offshore services industry.

You may have a point re exchange rates. The dollar rupee exchange rate has a big impact on earnings and if that fluctuates like it has in the last year, it makes for an unstable environment.

By: Basab Pradhan

Basab Pradhan — Tue, 09 Feb 2010 16:37:36 +0000

"you are talking only about mergers between Indian outsourcers which doesnt bring any strategic synergies to complementing companies ."

Well, that was precisely the point I was making. I think it is time for acquisitions that just add bulk as opposed to bringing complementary value.

By: Krishna

Krishna — Tue, 09 Feb 2010 16:13:23 +0000

Guess it's a little too early to say growth is back. I would say the aftershocks are yet to be felt (check out Greece and Spain that sputtered recently) . Also there's something else that's holding the acquirers back – fate of the dollar. Even now, a major portion of the revenues of outsourcing vendors come from the U.S clients that are rooted in an economy that's way too wobbly. Not quite the hour to loosen purse strings. In fact, it's better to wait it out to see which companies survive and then take a call whether to smother them in the market or to shake hands with them.