 "TCS' bet in continental Europe")
Established in 1995, Alti has subsidiaries in Belgium, Switzerland and Algeria. In 2011, the company reported consolidated revenues of euro 127 million (about Rs 900 crore) and earnings before income tax of euro 9.1 million (about Rs 64.6 crore). Alti Belgium has a turnover of euro 20 million and is a major player in that country’s market, the company said.
Through the last 15 years, Alti has been providing customers support for technologies such as SAP, SWIFT, anti-money laundering, CRM, EPM, governance and ITIL. The company has onshore and near-shore centres.
More From This Section
“France is a very difficult market; you need to demonstrate yourself as a local player to be able to get the comfort of companies here. This acquisition will give TCS local presence, local staffing and local centres-— these have the potential to provide the desired growth momentum to the company,” said Ian Marriott, vice-president, Gartner Research.
For TCS, the acquisition is important for two reasons. First, though Europe’s contribution to the TCS revenue is 26.6 per cent, continental Europe’s contribution is about just 9.1 per cent; the chunk of revenues continues to come from the UK. The acquisition, expected to close by the end of this quarter, would add to TCS’s Europe revenue. Second, France’s IT services market (estimated at about euro 30 billion) is the third-largest in Europe, after those in the UK and Germany. TCS has been operating in France since 1992 and has about 50 clients in that country. These clients include several in the CAC 40 stock index. The acquisition would provide TCS access to several European clients.
However, there are concerns, too. “With 1,200 employees and an onshore presence, ideally, the revenue (for Alti) should have been much higher. But that does not seem to be the case,” said Sudin Apte, research director and chief executive, Offshore Insights. The Alti website, too, suggests the company’s revenue has been stagnant for a while. Its consolidated revenue (according to its website) was euro 125 million in 2009 and euro 127 million in 2010 and 2011.
A few clients Alti brings to the TCS table are AXA Banque, Banque de France, BNP Paribas, HSBC, Societe Generale Insurance, Air Liquide, Alcatel Lucent, Mercedes Benz, L’Oreal, Sanofi Aventis, Thales and Air France. The company would also give TCS access to the French public sector, as Alti’s clients also include Agency Financial Computerisation of State, National Library of France, OECD, NFB, Unesco and City of Paris.
The next big focus
“The business in the UK and the US is saturated for almost all leading companies. Europe, given its culture, its language barriers and its labour laws, requires companies to have a local presence. Firms such as HCL, TCS and Infosys are making acquisitions in central Europe, primarily in Germany or France. For these companies, these are small, tuck-in acquisitions where integration is not a problem. These acquisitions would help Indian firms enter new areas and increase geographical focus,” said Sid Pai, partner and president of ISG Asia-Pacific.
With Indian IT services companies well entrenched in the US and the UK, the next big focus for the industry is continental Europe. Companies such as TCS and Cognizant have started acquiring targets in these markets. Towards the end of 2012, Cognizant had announced the acquisition of six companies of the C1 group, an independent consulting and IT services firm based in Hamburg, Germany.
“Essentially, there are two factors at play. First, given a lower brand recall in Europe, it is not easy for Indian IT companies to grow to a meaningful size, organically, in continental Europe. Second, Indian IT players want to utilise the current economic environment in Europe to acquire scale, reach and competences at reasonable valuations to partake in the expected growth once Europe’s fortunes turn around,” said Amit Singh, executive director, head (technology) and co-head (outsourcing group) at investment banking firm Avendus.