IT vendors look around for inorganic SAP flavour [Financial Express (India)]
(Financial Express (India) Via Acquire Media NewsEdge) The growing preference of large Indian software services companies to acquire firms with SAP software expertise has sharply brought into focus the industry's penchant of moving up the value chain.
Indian IT services firms have over the years built deep SAP expertise, an enterprise software developed by a German company. However, acquisition of firms with significant domain expertise will give them higher-end capabilities like consulting and system integration, which provide a more profitable stream of revenue.
The latest example of such an acquisition involved Mahindra Satyam, which bought Brazil-based SAP consulting provider, Complex IT, for a total consideration of $23 million. Back in 2008, there was a bigbang acquisition by HCL Technologies of UK-based SAP consultancy Axon for around 440 million, outbidding Infosys. However, Infosys got back into the game by acquiring Zurich-based management consultancy firm Lodestone for $345 million in 2011, which has got a strong expertise in the area of SAP.
In December, New Jersey-based Cognizant acquired six companies of German IT consulting and services firm C1 Group, which provide services in enterprise application, mainly SAP and high-end testing. The deal is expected to boost the company's local footprint in Germany and Switzerland and its global delivery services catering to European clients.
Commenting on this trend, Sid Pai, partner and managing director, TPI India, a sourcing advisory firm, said, "They are attempting to round out their capabilities in SAP in particular and enterprise resource planning in general by adding the front-end consulting capability to their technical strengths. To boot, they would have already had significant working relationships with the acquired firms even before the acquisitions because they would have been working together at several client installations of SAP. This fact would hopefully mean that the operating merger of these entities would have been easy, and would have plenty of opportunities to provide synergy."
SAP is a predominant player in the space of enterprise software with its suite of ERP products applicable across multiple industries. A general thumb rule for IT companies engaged in this segment is: "For every dollar spent on a SAP product or licence, four more are spent on the process consulting and technical capability required to complete an installation."
A senior official of a large Indian IT company said, "There is a strong pent-up demand among companies who are in the process of implementing SAP software, and acquiring such firms gives us strong specialisation skills." Given the competitiveness of the global outsourcing market where many segments have become highly commoditised, Indian IT companies are actively scouting for areas where they could compete more effectively with well entrenched players such as IBM, HP and Accenture.
Pradeep Mukerjee, president, Avasant, an IT-BPO advisory firm, said such acquisitions would give them front-facing access to clients directly along with doing critical work, unlike in the past where they were doing more of the back-end activity. Indian companies have already established their dominant status in the area of application development and maintenance (ADM) but need to get into technology areas which were more mission-critical. In such a scenario, acquiring SAP-related companies fits well with their strategy, he added.
Copyright 2013 The Indian Express Online Media Pvt. Ltd., distributed by Contify.com
Credit: Debojyoti Ghosh
(c) 2013 The Indian Express Online Media Pvt. Ltd., distributed by Contify.com
[ Back To Technology News's Homepage ]