Indian IT supplier will buy big European competitor

One of the major Indian IT suppliers will buy a major European competitor within two years as consolidation gains momentum

One of the major Indian IT suppliers will buy a major European competitor within two years as consolidation gains momentum after the recession, Gartner predicts.

"By 2011, one of the big Indian top-tier vendors will acquire a top 20 European-headquartered supplier," Gartner analyst Ian Marriott told the audience at the Gartner Outsourcing and IT Services Summit 2009.

Tata Consultancy Services (TCS), Infosys Technologies, HCL Technologies, Wipro, Cognizant and Satyam top the list of Indian suppliers. Each of these companies has reported double-digit growth over the past 10 years. HCL acquired European SAP integrator Axon for almost £500m last year.

Mark Lewis, partner and head of outsourcing at law firm Berwin Leighton Paisner, said that an acquisition was the only way for an Indian company to penetrate the market and become a global tier-one supplier.

Indian suppliers have grown as much as they can organically and must look for an acquisition to grow more, he said. "Europe is the biggest nut to crack in outsourcing currently, and it is hard to do it without a major European footprint and customer base."

He said it would be difficult to look beyond Infosys, Wipro and TCS as potential buyers.

But Robert Morgan, director at Hamilton Bailey, said it does not make sense for Indian firms to take on the large workforce and high cost base of a European company.

"It is possible, and I think a few might have a go at picking up one that needs rescuing, but why would they buy a firm that has a higher cost base and lives off much lower margins?" he questioned.

Morgan said it would be better business for Indian suppliers to set up a new business in Europe.

Peter Brudenall, partner at law firm Hunton & Williams, said a major acquisition by an Indian firm is a recurring rumour, but he said a smaller, more strategic acquisition is more likely.

"I would not rule out a major acquisition, but it is more likely to be along the lines of HCL's strategic acquisition of Axon to give it consultancy skills. This type of acquisition would help the Indian suppliers provide more services to their existing customers," he said.

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