M & A among offshorers .. or is it Offshoring M & A?
Infosys Rumored To Eye Bid For Capgemini ran a headline in Forbes and other business media, earlier this summer, causing a bit of a buzz in the stock-markets. Quoting the forbes article “They’re both denying it, but the markets are abuzz with rumors that Indian software giant Infosys will attempt to acquire a controlling stake in European tech consultancy Capgemini” Another news, this time about a real merger in the offshoring space [Wipro completes cash tender offer for Infocrossing] was also watched closely by analysts and technologists alike.
Now, I am not given to rumors, but in my day job as an Architect, consultant and advisor to CxOs and technology leaders, I come across my share of smoke-and-mirrors on various aspects of technology management, including on Mergers and Acquisitions. I have to be cautious in voicing my opinion as I am bound by my employment contract, but then, it is hard for me to totally abstain from analysis of ‘hypothetical’ possibilities, the ‘what if’ scenario planning as management gurus call it. And this is certainly a trend that media is closely watching. [Example, #1 among the “Five outsourcing trends to watch” Consolidation … also blogged online ]
A few facts about Mergers and acquisitions (Wikipedia: M&A) in the software services arena.
- The world continues to get flatter (apologies Tom Friedman), which means that M&A or buyout of firms in hi-tech is not restricted to a few western nations alone
- Global software services firms that have been growing at a steady pace, thanks to the interest in offshoring services are bound to consider merging, getting acquired or buying other firms to expand their footprint.
- IT is integral to operations of business [‘IT Does matter’] and a seamless integration is the Raison d'être of a successful M&A.
- M&As –even of technology firms - also involve many business dynamics -- financials, legal, regulatory, and other ‘softer’ ones like cultural fit etc. Now, such dynamics become more pronounced when we are talking about merger of organizations operating across cultural and geographic boundaries.
Should an M&A matter to clients of sourcing firms? Yes an no. Yes because any significant transition at your partner’s business could indirectly impact you too. However, in most cases such impact can be mitigated with checks and balances and well crafted Service Level Agreements (SLAs)
- Most relationships between client and service firms are governed strategically, though the operationalization may be tactically be managed by account managers and leaders on a one-on-one basis, so a M&A of service firm would typically not impact clients. This said, after a merger, there could be a transition of people, account managers and the like. But there again, such transition of people across projects is nothing that is generally out of the ordinary, even in the normal course of doing business; right?
- If anything, clients should benefit from synergies that M&As promise, especially if the merger is between <their> firm and another that provides specialized service in the client’s domain, geography etc
Note, here I have not even begun to discuss the impact of M&A among clients of software services firms… which is a different story in itself. Footnote: [just to make it obvious :-) ] viewpoints in this blog entry are mine personally and are not based on any ‘rumor’ of M&A that I may/may-not be aware of.
Comments
While Infosys has to its credit built a successful business model, in some ways it is not different than CTSH, Wipro, and TCS, and increasingly IBM with its Indian operation. So the only way to accelerate growth is through acquisitions. There are very few large firms left in the industry. Its time Infosys did what a Chinese player would have done, go for the game changing acquisition -- go for EDS.
Sam Miller
www.walkersresearch.com
A quality source of business information
Posted by: Sam Miller | October 9, 2007 06:39 PM
Well Sam,
Wish I could comment on this.
But it is hard for me to even speculate …or let the imagination run its course. :-)
Posted by: Mohan | October 10, 2007 04:01 PM