Why did the top tier stay away?

As strategy head and M&A marksman for Wipro, K.R. Lakshminarayana, or ‘Lan’ as his peers call him, is used to being approached by all sorts of companies keen on being acquired by the soapsto-software firm. He has spent $1.3 billion on 21 deals, but there was one much-publicised deal that he wouldn’t touch with a bargepole.

Despite having a specialist M&A team, no one at Wipro had any interest in buying the scam-hit Satyam Computer Services. Buyers had to face up to Satyam’s jailed founders and senior managers, fleeing clients and a pile-up of tricky cases in court, while weighing the opportunity to access the fourthlargest pool of SAP consultants globally.

“The risks far outweighed the potential on this deal,” says Lakshminarayana, explaining why Tier I vendors and their global peers steered well clear of a bid. For the risk-averse Infosys, a conservative mindset—the company has made just one IT acquisition— and a premium on cash quickly removed it from the race. “We have a specialised team that looks at acquisition opportunities, but there has to be a strategic perspective. We look for the right company, the right price and the right reasons,” said CEO & MD, Kris Gopalakrishnan, soon after announcing Infosys’ fourth quarter results.

Simultaneously, the gun-shy company is also going out of its way to make sure it conserves cash. “We have $2 billion in cash; in these difficult times, cash isn’t just king, it’s God,” says V. Balakrishnan, CFO, Infosys. For a company that’s announced zero hikes and no promotions this year, the HR headache around Satyam—uncertainty over headcount and bench strength— was yet another reason to stay away from the race.

Industry experts also say that Satyam, even in the best of times, had little to offer to its rivals. “Companies such as IBM and Accenture have bought and built their India presence already and they wouldn’t have gained anything special with this deal,” says Siddharth ‘Sid’ Pai, Partner & MD, TPI, an offshoring advisory company.

IBM had acquired BPO firm Daksh in 2004 and has over 70,000 people in India, while Accenture has organically built its headcount to over 40,000 across IT, BPO and consulting over the last few years. Says Pai: “If MNCs have rapidly built their India presence, domestic firms want to expand their global footprint and buy into new industries and markets.”

While Wipro has gone on an acquisition spree across North America and Europe, Tata Consultancy Services (TCS) has invested in Latin America; and HCL Technologies recently acquired Axon, which gives it a foothold in the European and SAP markets.

Investment bankers BT spoke to argue that a haemorrhage of large clients straight after the scam broke as well as continued customer attrition made the deal unattractive to large firms. “Most large Indian vendors get 97-99 per cent of their revenues from repeat business…at a time when they’re trying to preserve cash, they may not want to loosen their purse strings to make this deal,” says Bundeep Singh Rangar, Chairman, IndusView Advisors, a London-based investment bank.

A duplication of clients also kept some companies away. “We didn’t look at Satyam as a strategic buy at all. We have a lot of common clients,” says S. Ramadorai, CEO& MD, TCS, India’s largest software exporter.

Clearly, in these troubled times, none of India’s top tier is interested in a tricky gamble.

Additional reporting by Rachna M. Koppikar