Everest Research Institute in the recently released findings of its study has observed that ITO suppliers in the APAC region are increasingly looking at mergers and acquisitions to sustain their growth momentum. The findings estimate that out of the 114 major Mergers & Acquisitions deals completed by 34 leading ITO suppliers globally between January 2004 and September 2008 APAC contributed approximately 14% of total number of deals.

While almost half of the deals occurred in North America, company analysts observed a fast growth of acquisitions in Europe, Middle East and Africa (EMEA), demonstrating a renewed focus on Europe. The study also estimates that the average deal size in Europe (US$ 415million) and in APAC region (US$ 325 million) is higher than that in North America (US$ 221 million).

“ITO suppliers are purchasing larger firms in EMEA as compared to other geographies, which explain the highest average acquisition price there. However, it might come as a surprise to note that companies are putting the highest value per dollar invested to firms not in US or Europe but to acquisitions in the APAC region. While the average multiple ratio for an acquisition in APAC is 2.90, it is 1.41 in EMEA and 1.77 in North America,” explained Gaurav Gupta, Principal & Country Head, Everest Group.

“India has been strategic both from a standpoint of acquisitions as well as acquirers. While 8 of the total 114 M&A deals occurred in India, as many as 9 of the total 34 ITO suppliers acquiring were from the country. As we move along, we hope to see more of big local suppliers looking at acquiring ADM capabilities to move up the value chain,” added Gupta.

The findings indicate that M&A activity has been steadily rising among ITO suppliers year-on-year ever since 2004. Among the ITO M&A deal target service lines, Application Development & Maintenance (ADM) and IT consulting have emerged as the hot favorites with 37% and 31% of deals respectively. The study also indicates that the spurt of inorganic growth among ITO suppliers is not due to the economic slowdown only. Company analysts observed that enhancement of offshore presence, expansion into newer geographies, acquiring industry-specific skills especially domain-specific consulting skills, buying into existing client-base, plugging gaps in service portfolio by acquiring specific IP or skill-set or consolidating offshore operations were other major reasons for the growth.