Smaller IT firms strategize to grow


Size matters. And no one seems to have understood this better than hundreds of small and medium IT enterprises. Determined to grab a bigger piece of the action on Deal Street smaller IT companies in India have taken to inorganic growth in a big way, many of them acquiring entities as big as themselves.

The big players today undertake most of the large deals that come India’s way, and smaller IT players realize that scaling up is the only way to compete. Many also feel that size matters for the sake of keeping their talent pool intact, because employees tend to be attracted to the big names in the industry.

COO of Chennai-based IT services company Calsoft said that initially they were happy with doing high-end work for our clients because the margins were much higher. Recently they decided to change the strategy, and felt that the numbers are needed in the balance sheet. The best way to do that was to look at acquisitions. Therefore Calsoft has stepped on to acquire as many as half dozen companies in the past couple of years.

Hyderabad-based Four Soft, which specializes in transportation, logistics and Supply Chain Management, concluded two acquisitions last year—DCS Transportation and logistics of UK and Singapore-based Comex Frontier. It is learnt that the company is now working at completing two or three more acquisitions over the next year.

Even start-ups are no exception. Enzen Global commenced operations six months ago with a focus on consulting. Traditionally, it is the bigger players who have set foot in this space. Big names always attract prospective consultants and it is for this reasons that Enzen too is scouting for acquisitions.

Consulting is the company’s bread and butter. In six months, they are already 90 people strong and are looking at revenues of $5 million in the first year. However, in order to hire good consultants it is important to constantly present them a challenging environment and the opportunity in the world of niche consulting.

CEO of Enzen Global said that they either emulate niche consulting firms worldwide or acquire them.

Bangalore-based Aztecsoft acquired software product-testing firm Disha Technologies by forking out $9.6 million in cash and $2.5 million in stock. That provided an opening for it in the testing services space. Their MD said that the acquisition was “a strategic response to their customers’ needs to manage rapid product development, while maintaining independence in testing.

neoIT, are only now seeing real market consolidation. There is now a terrific need to have certain size, scale of operations and the complementary capabilities across geographies to get work says a director of the company.

At a glance figures reveal:

· There are 94 M&As in the Indian IT sector.
· Close to 60 deals worth $5 million were concluded.
· The market for third-party telecom software and services is expected to reach$4 billion in 2006 and grow to$11.5 billion by 2009.

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