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Cash-rich Indians ready to buy local tech

Paul Smith, AFR | July 24, 2012
Australian technology companies are bracing for an Indian assault as cashed-up outsourcing specialists have instructed the heads of their local operations to target local players in a bid to stimulate slowing growth by opening up access to new customers.

Australian technology companies are bracing for an Indian assault as cashed-up outsourcing specialists have instructed the heads of their local operations to target local players in a bid to stimulate slowing growth by opening up access to new customers.

Despite a trend towards technology outsourcing in some areas, India’s largest multinational suppliers are facing tighter margins and lower growth rates as technology projects get put on hold due to tight financial conditions around the world.

Indian technology industry experts and the chief executives of local operations of Indian players have confirmed to The Australian Financial Review  that under-valued technology firms on the Australian Securities Exchange are considered relatively safe options for growth through acquisition.

A look at the funds available to the Indian players shows they can easily swallow up companies earmarked by experts, such as ASG Group, UXC, Oakton and Data#3. According to the most recently announced figures, Tata Consultancy services (TCS) has $US4.5 billion in current assets on its books, Infosys has $US5.9 billion, Wipro has $US8.6 billion, Cognizant has $US4.1 billion and HCL Technologies has $US1.6 billion.

Mohit Sharma, director of independent consultancy Mindfields, which has advised Australian and Indian IT companies on strategy and merger and acquisitions, said the Australian offices of Indian firms were under “big pressure” to target acquisitions that would add to margins.

“For the last three quarters, Indian IT companies have been struggling with performance, with lower margin and revenue growth in organic mode. They need to look at bigger acquisitions to acquire revenues, clients and skill sets for the future,” he said.

“Up until now, Indian companies have restricted themselves to relatively small deals in Australia, but they have massive cash reserves and are increasingly having to justify to stakeholders the rationale of hoarding cash over risk appetite.”

TCS Australia and New Zealand chief executive Deborah Hadwen said the company was pleased with the performance of its two Australian acquisitions to date, and she was in regular contact with the India-based M&A team regarding potential acquisitions.

TCS acquired Sydney-based FNS for $US26 million in 2005 and TCS Management (formerly called Total Communication Solutions) in 2006 for $15 million.

“There is potentially good value in the Australian IT market, it is a case of looking at them on a case by case basis and seeing if they fit in strategically with the kinds of skills we are trying to supplement,” Ms Hadwen said.

“Alternatively, they could enter us into markets we are trying to target ourselves. If it is a pure services player, then we look at them quite clinically because you are basically talking about taking their people, so you have to look at factors such as whether they have any IP, do they have any longtail contracts, and are they in markets with a reputation you want to pursue.”

 

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