Bobby Parikh, Managing Director, BMR Advisors

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Information about Bobby Parikh, Managing Director, BMR Advisors
Technology

Published on February 13, 2009

Author: nasscom

Source: slideshare.net

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NASSCOM: India leadership Forum 2009,Day3, Session 15A: M&A in 2009: Gazing into the crystal ball, Bobby Parikh, Managing Director, BMR Advisors

| | Gazing into the Crystal Ball M&A in the IT/ITES Industry in 2009 February 13, 2009 Bobby Parikh

Presentation overview 2008: A recap 2009: Looking ahead What factors will impact M&A activity When will there be a significant shift in deal activity What will be the key themes What will be the key transaction features Implications for Buyers, Sellers and Investors |

2008: A recap

2009: Looking ahead

What factors will impact M&A activity

When will there be a significant shift in deal activity

What will be the key themes

What will be the key transaction features

Implications for Buyers, Sellers and Investors

2008: A Recap |

A recap of M&A activity in 2008 Amongst the top 3 ‘active’ sectors in value ($3.4 Bn) and volume (102) terms Shift towards larger & strategic deals Deal value has grown despite significant fall in volumes 72% growth in ticket size vs 2007 8 big deals of over $100Mn constitute 71% of the total deal value Gain in domestic transactions Domestic transactions up from 13% in 2007 to 23% in 2008 in deal value terms Outbound deals, while losing share, still dominate overall activity | Source of data: Nasscom, ValueNotes, ThomsonOne and BMR internal research Deal metrics 2008 2007 Value (Y-O-Y growth) 18% -0.6% Volume (Y-O-Y growth) -36% 63.9% Avg ticket size ($Mn) 69 40 No of Deals> $100Mn 8 7

Amongst the top 3 ‘active’ sectors in value ($3.4 Bn) and volume (102) terms

Shift towards larger & strategic deals

Deal value has grown despite significant fall in volumes

72% growth in ticket size vs 2007

8 big deals of over $100Mn constitute 71% of the total deal value

Gain in domestic transactions

Domestic transactions up from 13% in 2007 to 23% in 2008 in deal value terms

Outbound deals, while losing share, still dominate overall activity

2009: Looking ahead |

Key factors impacting M&A in 2009 | While value creation opportunities and strained financial positions will boost M&A activity, the pace, timing, and magnitude of deal activity will be impacted also by the overall state of the global and Indian economy Accelerators Factor Impact on M&A Value creation potential for Buyers / Sellers through strategic tie-ups or partial acquisitions / divestments High Weak financial positions in many smaller-sized companies High Weaker ability to meet target growth rates organically despite lowered expectations Low Decelerators Factor Impact on M&A Valuations (will attract Buyers, but make targets hold out aggressively) High Willingness to buy in weak and uncertain economic environment High Poorer (relatively) availability of funds for acquisitions (partial decline in internal accruals and drying up of external funding) Low

Pace and timing of deal activity Economic indicators point to an inflexion point by the second half of 2009 / early 2010; two potential scenarios could then emerge Significant deal activity driven by “value buys” Buyer: Companies of all size Sellers: Small and mid-sized players and PE funds Significant deal activity driven by survival need Buyers: Large companies or PE funds as “aggregators” Sellers: Small companies and some big boys as well Economic recovery Downturn deepens Scenario M&A impact In either scenario, we expect deal activity to gain momentum from the 2 nd half of 2009. That said, in “value” terms, deal activity could be significant even earlier as key large / strategic deals take place |

Significant deal activity driven by “value buys”

Buyer: Companies of all size

Sellers: Small and mid-sized players and PE funds

Significant deal activity driven by survival need

Buyers: Large companies or PE funds as “aggregators”

Sellers: Small companies and some big boys as well

Dominant M&A themes Expansion into new geographies Acquisition of new customers Reduce dependence on the US market to de-risk revenues Tap emerging / under-penetrated markets to boost revenue growth Reduce customer concentration risk (lessons from the recent bankruptcies) Create stable revenue streams, potentially through captive acquisitions Create cross-sell opportunities for growth Themes Business imperatives The M&A priority in the short-term would be to de-risk and grow revenues . In the medium-term, however, we see the return of an M&A strategy driven capability expansion |

Reduce dependence on the US market to de-risk revenues

Tap emerging / under-penetrated markets to boost revenue growth

Reduce customer concentration risk (lessons from the recent bankruptcies)

Create stable revenue streams, potentially through captive acquisitions

Create cross-sell opportunities for growth

Key transaction characteristics Target functions IT: ERP and consulting, products / platforms / tools BPO: F&A , BFSI-specific transaction processing, value buys in research and analytics. Procurement outsourcing has the potential to become a big activity area Target geographic focus (clients): India, Europe, Japan and Australia Target industries: BFSI, which is still a large opportunity; Retail has potential, but strongly linked to global economic recovery; Utilities Target considerations: Established profitability, high quality client base, strong leadership |

Target functions

IT: ERP and consulting, products / platforms / tools

BPO: F&A , BFSI-specific transaction processing, value buys in research and analytics. Procurement outsourcing has the potential to become a big activity area

Target geographic focus (clients): India, Europe, Japan and Australia

Target industries: BFSI, which is still a large opportunity; Retail has potential, but strongly linked to global economic recovery; Utilities

Target considerations: Established profitability, high quality client base, strong leadership

Implications for Buyers, Sellers, and Investors |

Key implications for M&A participants Evaluate strategic partnerships / new transaction structures to gain entry into target companies rather than waiting for complete buy-outs Increase focus on overseas opportunities as relatively smaller drops in value multiples should make these more amenable compared to offshore-based companies Target India-centric companies to access domestic market and potentially reduce operating costs Buyers Actively consider partial divestments for strategic tie-ups with better-capitalized players to ensure capital access and growth opportunities Shift focus to maintaining profitability and retaining customers as opposed to rapid expansion Maintain good cash positions, especially given reduced funding availability, to avoid distress sell-outs Sellers Increase engagement with portfolio companies, especially to improve access to customers and funds Evaluate portfolio aggregation to avoid forced exits Scout intensively for value buys where able Private Equity In 2009, the much talked about consolidation of the industry will become a reality, and the fittest will survive and grow |

Evaluate strategic partnerships / new transaction structures to gain entry into target companies rather than waiting for complete buy-outs

Increase focus on overseas opportunities as relatively smaller drops in value multiples should make these more amenable compared to offshore-based companies

Target India-centric companies to access domestic market and potentially reduce operating costs

Actively consider partial divestments for strategic tie-ups with better-capitalized players to ensure capital access and growth opportunities

Shift focus to maintaining profitability and retaining customers as opposed to rapid expansion

Maintain good cash positions, especially given reduced funding availability, to avoid distress sell-outs

Increase engagement with portfolio companies, especially to improve access to customers and funds

Evaluate portfolio aggregation to avoid forced exits

Scout intensively for value buys where able

| | If you would like further information please contact : New Delhi The Great Eastern Centre, First Floor, 70 Nehru Place, New Delhi 110 019 Tel: 91 11 3081 5000 Fax: 91 11 3081 5001 CONTACT BMR IT/ BPO M&A TEAM Mumbai 3F, Contractor Building 41, R. Kamani Marg Ballard Estate Mumbai - 400 001 Tel: 91 22 3021 7000 Fax: 91 22 3021 7070 Bangalore 2nd Floor, Embassy Icon Annexe, 2/1, Infantry Road Bangalore 560 001 Tel: 91 80 4032 0000 Fax: 91 80 4032 0001 www.bmradvisors.com Vivek Gupta DID: +91 11 3081 5052 Cell: + 91 98104 04411 [email_address] Sheetal Bahl DID: +91 11 30815095   Cell: +91 9811824168 [email_address] Shivani Nagpaul DID: +91 22 3021 7165 Cell: +91 99205 91054 [email_address] Chennai 33, South Beach Avenue MRC Nagar Chennai 600 028 Tel: 91 44 4298 7000 Fax: 91 44 4298 7001

| | C h a l l e n g e U s BMR Advisors

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