'IT firms could net $287bn in Europe by '10'

The year 2007 could be a watershed year for Indian vendors and their foray into Europe with several small to mid-sized acquisitions and a couple of large transformational ones.

A research report by investment bank Avendus Advisors says Indian IT companies could pursue an aggressive merger and acquisitions (M&A) strategy to exploit the $287 billion IT services opportunity presented by Europe.

While the European IT services market is expected to grow at a compound annual growth rate (CAGR) of 5.8% from $217 billion in 2006 to $287 billion in 2010, the market for offshore IT services is expected to grow at a CAGR of 60% through 2009 as compared to 35% of the US market.

Aashish Bhinde, VP, Avendus Advisors, said: "This year we should see five to six acquisitions in the $100 million category. At least two to three will be done by large-cap IT companies and the rest will happen among the mid-cap companies."

The European IT services industry has been witnessing significant M&A activity over the last few years. Mid-sized players have been acquired by both local and global players.

The report points notes that Indian companies too have acquired European companies to build up their business. The total value of acquisitions by Indian IT companies in Europe last years (2006) was almost $500 million, however most of them were centred in UK.

However, the report points out that barring a few most Indian IT services companies have concentrated on the UK market than have presence in the Continental Europe--  a market with a combined size of $108 billion.

Though top Indian players including TCS, Wipro, Infosys, Satyam and HCL have repeatedly demonstrated robust revenue growth from European market in the last five years, more than 75% of these revenues come from UK and a couple of other English speaking countries like Netherlands, the report added.