About 20 mid-cap IT firms willing to sell out

Source: SiliconIndia
Mumbai: Reeling under the burden imposed on them by the current financial slowdown, 15 to 20 mid-sized IT companies that generate revenues of $100 - $150 million are willing to sell out, reports Business Line.

Many overseas IT majors who do not have a well-developed India strategy are already showing interest in those companies as Indian promoters seem to have become more realistic when it comes to valuations, according to merchant bankers and private equity players.

Rajesh Subramaniam, Managing Director, Walden International India, a private equity firm, said, "The business models of several IT companies, especially the ones exclusively servicing the U.S. financial services industry, have become redundant due to the global financial crisis. If one were to look at companies in the $100-200 million range, there would easily be more than 20 IT firms that would be interested in selling out."

Analysts think that while companies with revenue upwards of $500 million can manage price cuts with a manageable dent in margins, the ones with the revenue from $100 to $150 find it extremely difficult woo customers with discount or other offers.

"Mid-tier IT companies have very little scope to offer price cuts or discounts to customers," says Ranu Vohra, Managing Director and CEO of investment banking company, Avendus Capital.

Valuations have been the reason why many prospective deals involving multi-national IT players did not go through in the last three years. However, that seems to have changed: "We have seen valuations dropping by 30-40 percent compared to last year," said Atreya.