Indian IT to become hot spot for M&A in 2-3 yrs: Gartner

The next two to three years could see the Indian IT sector become a hot-spot for merger and acquisition (M&A) deals. That's the word from industry body Gartner, which says the 10 deals see so far this year are just the beginning.

With 10 deals in the pocket so far this year, the Indian it sector seems to have caught the consolidation bug. And Gartner says that the next two-three years will only see this number increase. 

Gartner argues that increased competition in the sector will drive players to employ the acquisition route to expansion. And deal sizes may vary widely: from 50 million deals, to deals that cross the USD 250 million mark.

Gartner adds that the most common situation will involve an IT player looking to acquire it vendors with a complete bouquet of service offerings, and not just niche services.

Partha Iyenger, VP and distinguished analyst, Gartner said, “For an English speaking market and to some extent even a European market, India is becoming the center of gravity of that global delivery story. So they are looking for acq in India of tier 2, tier 3 providers. The second is outward M&A from India where the service providers, we've had a lull coz of recession, primarily focused on mainland Europe.”

Gartner also sees greater Indian interest from Japanese players. Reports are already doing the rounds that Japanese companies like Fujitsu, NTT and Hitachi are on the prowl for stakes in mid-cap it firms in India. Gartner says that Japanese IT firms have a limited presence in India so far, and are afraid of losing clients who are interested in growing their Indian footprint. And this will spur M&A interest from Japan.

Peter Sondergaard, Senior VP - Research, Gartner said, “We believe the Japanese providers will look at acquisitions in areas that are important to them and some of the large ones do need presence in India, so that is one area we will see acquisition.”

Deals will not be restricted to cross-border ones. Consolidation among local tier-2 and tier-3 players is also expected to pick up steam. And may even overshadow partnerships in the space.