However, deals in technology services space were not impacted as much as the overall technology segment. M&As in the segment stood at 14 in January, rising to 28 in February, and was 17 in March.
“While the current unprecedented situation has shaken investor confidence, we expect technology outsourcing industry to be a net-gainer in the medium to long term,” Avendus Capital said. No wonder, companies
such as Accenture, Infosys, Capgemini, Cognizant have closed acquisitions in March, despite the crisis.
In the past few years, most top and mid-tier IT services firms, including Infosys, Wipro, HCL Tech, and Tech Mahindra, have completed many acquisitions to build capabilities apart from supplementing revenue growth. “When the industry is likely to see a revenue growth in the range of -5 to +5 [per cent] in 2020, a good acquisition can in many ways offset losses from core business.
At a time, when valuations are attractive, many IT firms have started exploring this option,” said Pareekh Jain, an IT outsourcing advisor & founder of Pareekh Consulting. While large-cap IT stocks have fallen by 27 per cent in March from their five-year high globally, market cap of mid-cap IT firms have dipped by 48 per cent.
Similarly, diversified BPM firms have seen an erosion of 54 per cent in market cap during the period, according to Avendus Capital. Such dips have made many firms operating in technology services space attractive for acquisition.