The much-touted iGate-Patni deal has finally seen light of day. Will the deal spur a wave of consolidation in Indian IT services firm? Will both entities face integration challenges? Was the deal in line with industry expectations. VCCircle picked some thoughts of industry leaders on how they assess the deal. Excerpts:-
The deal will spark off consolidation of mid-sized players
Abhijit Ranade, Associate Director, PwC: In the next 12-24 months, we will see more discussions, action happening. We will see more small and medium enterprises talking to each other, PEs pulling them together. In a commotidised market, scale becomes of prime importance.
Pradeep Udhas, Executive Director and Head of IT/ITeS Sector, KPMG: I think consolidations will happen only in 2012. This year, people will observe and see how the Patni merger goes, when they make a success out of it. Resistance to consolidations will break next year. Without consolidation, any two IT generic services players in the industry would fizzle out in face of competition from the big five - TCS, Wipro, Infosys, Cognizant and IBM who are in the $4 billion range, followed by Satyam and Tech Mahindra in the $2 billion range and L&T.
Ramchandra Naik – Practice Leader, Company and Market Intelligence, Datamonitor India: Yes, the deal is likely to lead to a round of consolidation of mid-sized players who are finding it tough to scale beyond their current level. In the next few years small and medium size companies will find it increasingly challenging to grow their business and operate with large scale of economies.
On how Patni scaled up
Sai Chandra Kanala, Senior Analyst Technology, Company and Market Intelligence, Datamonitor India: Patni's revenues grew from $450.3 million in 2005 to $655.9 million in 2009. The number of active clients in 2005 was 199 and increased to 272 by 2009. In 2010, it reported an active client base of 282. Other peers like TCS, Cognizant and Wipro expanded and grew their business at rates faster than that reported by the company.
Ranade: Patni did a couple of things which are good and iGate will benefit from it. One is trying to move away from dependence on USA and foray into Japan and other markets.
Udhas: Patni obviously thinks it needs to do better. If you think about it, Patni is the oldest IT services firm. iGate is '93 born and it's more like a small fish eating a big fish. But there are companies that have started later and gone ahead. In absolute terms, you could compare it with Infosys, for example.
Implications of the deal; What's next
Ranade: It's a good thing; both organisations need to grow and one of the ways was through an acquisition or a merger.
Naik: The combined business of iGate and Patni will now be close to $1 billion in revenues, which will enable them to better represent themselves to companies outsourcing large value deals. It can also leverage Apax Partners' portfolio.
The integration challenge
Ranade: Now the key point is they need to get specialists in the first 100 days to integrate the 2 companies - people and processes. The ones that are successfully integrated have pulled out key executives out of the daily duties, senior people and stars, into integration activity. It's not going to happen on the fly, it has to be planned thoroughly.
Sai Chandra Kanala, Senior Analyst Technology, Company and Market Intelligence, Datamonitor India: The deal will bring integration related challenges in terms of customer and employee retention. Key employees of the company could also be looking for opportunities outside the combined entity due to cultural issues. Some customers of Patni would probably look for another vendor . These customers would have had strong relationships with the current management of the Patni Computers and with the sale of their stake there could be little incentive for them to continue doing business.