Mumbai: Armed with a $20 billion (Rs93,660 crore) war chest, International Business Machines Corp. (IBM) is scouting for potential acquisitions in India and across the globe as it seeks to almost double earnings in five years by expanding in emerging economies and focusing on software and services.
The push is in line with the acquisition-led growth strategy outlined by IBM’s chief executive officer Sam J. Palmisano at an investor meeting last month.
“We are being very acquisitive here,” Craig B. Hayman, a general manager in IBM’s software group, said in an interview during a visit to Mumbai last week. “We are looking. We are interested to hear from companies, if they believe they have a proposition that we might be interested in.”
Hayman was here for the integration of employees from Sterling Commerce with IBM, which acquired the company from AT&T Inc. for $1.4 billion in cash last month to expand its portfolio of software for companies in financial services, manufacturing and retail.
Palmisano said last month that he plans to spend $20 billion on acquisitions in the next five years. Operating earnings will jump to at least $20 a share by 2015 from $11.35 or more this year, he said.
For the year ended 31 December, the software group contributed about $21 billion of the firm’s overall revenue of $95 billion. For IBM, the three channels of revenues are computer hardware, information technology (IT) services and software products.
So far, IBM has made two acquisitions in India. In April 2004, it acquired business process outsourcing company Daksh eServices for around $170 million. In November 2005, IBM acquired IT infrastructure services firm Network Solutions Pvt. Ltd for an undisclosed amount.
IBM’s Hayman declined to disclose if the firm is looking at any Indian company currently. An analyst said that companies with proprietary software products that cater to small and medium enterprises (SMEs) could be possible acquisition targets in India.
“As a company, IBM has traditionally been large enterprise-centric, with skill sets and product portfolio that go with it,” said Asheesh Raina, principal research analyst at the Indian arm of technology researcher Gartner Inc. “Going forward, IBM will have to cater more to SMEs to be able to successfully convert demand into revenue channels in emerging markets like India.”
According to Raina, India has no dearth of successful software product vendors that cater to SMEs that IBM might find interesting acquisition targets.
Accounting software maker Tally Solutions Pvt. Ltd, Fiorano Software Technologies Pvt. Ltd and Newgen Software Technologies Ltd are some well known Indian software product companies.
According to New York-based market research firm Access Markets International Partners Inc. Indian SMEs— defined as having an employee base of less than 1,000—spent about $9.9 billion on information technology in 2009.
Indian software product companies are traditionally seen as potential takeover targets for larger firms. “After the initial growth, they tend to become restricted in terms of growth as they may not able to afford reaching out to potential markets beyond India,” Raina said.
One of the most cited examples of a multinational firm acquiring an Indian software product company is i-flex Solutions Ltd, which was taken over by Oracle Corp. for $590 million in 2005.
I-flex had software products catering to the banking sector which are now part of Oracle’s portfolio.
Reuters and Bloomberg contributed to this story.