A recent report mentioned plans of Indian IT companies looking
to acquire and expand in Australia through the acquisition of listed Australian
firms. Indian It companies are sitting with lot of cash and they are looking
for strategic acquisitions which can expand its offerings rather than revenue.
Indian IT companies enjoy profit margin of 25-30% and they would not want to acquire
firms which can impact their margins negatively. This angle impacted their
acquisition plans in the recent past and there were no big ticket acquisitions
seen in the Indian IT industry in the last two years.
Cash balances of Indian BIG 4's as
of 30th June 2012 in US$ mil
|
|
Infosys
|
3345
|
TCS
|
554
|
HCL
|
95.9
|
Wipro
|
1611
|
But the recent report specifies that the staff of the Australian
units of Indian IT firms have been tasked to identify the suitable target. This
article provides an overview of the possible target companies in Australia and the benefits
they guarantee to Indian firms.
Australian IT industry has seen 100+ acquisitions since 2010 and
majority of the deals were between Australian entities. U.S. companies have
also made their mark by acquiring 23 Australian companies in last 2.5 years.
Indian multinationals were majorly interested in organic growth and they have
made minimal acquisitions in this region. Now, with the increasing cash pie,
investor pressure to maximize the returns, and depleting growth in U.S. region
have forced Indian companies to seek acquisitions which can expand their revenue streams.
Year
|
No. of acquisitions in Australian technology sector
|
2010
|
40
|
2011
|
42
|
2012 so far
|
19
|
Here is the list of six listed Australian technology companies which can be a
good fit for Indian IT firms.
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Data#3 Limited
Data#3 Limited (DTL) is
an ASX listed company that provides market leading technology solutions across
a wide range of industries throughout Australia and Asia Pacific.
Data#3’s five
specialist businesses are:
- Licensing Solutions: for software licensing, asset management and
workforce productivity
- Product Solutions: for hardware procurement, warehousing,
configuration, deployment and disposal
- Integrated Solutions: for strategic consulting, and the design and
deployment of the datacenter, network and desktop infrastructure
- Managed Services: for essential support and hardware maintenance,
selective outsourcing, and cloud-based infrastructure and software as a service
- People Solutions: for contractor and permanent recruitment, and
human capital performance management
The company reported revenues of
(Australian Dollars) 696.2 million during the fiscal year ended June 2011, an
increase of 16.45% over 2010. The operating profit of the company was 21.83
million during the fiscal year 2011, an increase of 38.21% over 2010. The net
profit of the company was 15 million during the fiscal year 2011, an increase
of 37.43% over 2010.
Financials:
Sales AUD (mil) in 2011
|
Sales 1 Year Growth
|
Sales 5 year growth
|
PAT
|
Employees
|
Market Value USD (mil)
|
EPS
|
PE
|
696.2
|
16.4504
|
23.83
|
15.0
|
500
|
184.6
|
0.1
|
12.22
|
Data#3 expects to
generate a pre-tax profit of approximately AUD $19.7 million for the
2012 financial year.
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UXC Ltd
http://www.uxc.com.au
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UXC Ltd
http://www.uxc.com.au
UXC Ltd
is an IT service provider to over 2,500 customer organizations in the private
and public sectors across Australasia. The company is publically listed and is
amongst the largest Australian-owned IT services companies. UXC comprises three
“Go to Market” groups:
Consulting. Three
separate entities deliver UXC’s IT consulting services to the market, these
are: UXC Consulting; UXC Professional Solutions and UXC Engineering Solutions.
Services are provided by these entities in the following specialist areas:
Training, Business Transformation, Information Management, Telecommunications
Consulting, Project, Program & Portfolio Management, Change Management, IT
Research, IT Strategy & Architecture, IT Professional Services and Mobility
The Enterprise Applications ‘space’
is represented by three UXC business units Eclipse, Oxygen and Red Rock
Consulting. These consult in and implement ERP systems for mid to large size
organizations and individually represent Microsoft Dynamics, SAP and Oracle in
the market.
IT Infrastructure is represented by UXC Connect,
this business specializes in the areas of: Workspace Innovation; Contact
Centre; Security; Mobility; Cloud; Entertainment & Content; Managed
Services; Data Centre Optimisation; and Outsourcing
Sales AUD (mil)
|
Sales 1 Year Growth
|
Employees
|
Sales 5 year growth
|
Net profit Margin
|
EPS
|
PE
|
513.5
|
10.91
|
1,499
|
11.47
|
1.2
|
0.01
|
22.41
|
A potential
acquirer will be benefited with
www.smsmt.com
SMS Management & Technology is a consulting, technology and systems integration company employing over 1,700 professionals throughout Australia, Hong Kong, Vietnam and Singapore. Established in 1986, SMS is known for delivery excellence. SMS helps its clients improve their business performance through the implementation of strategy and the delivery of business and technology projects. Industry expertise spans the financial services, ICT, government, defense, health, utilities, mining, gaming and infrastructure sectors.
Sales in AUD (mil)
|
Sales 1 Year Growth
|
Sales 5 year growth
|
Pre-Tax Profit AUD (mil)
|
Net profit Margin
|
EPS
|
PE
|
306.1
|
23.6227
|
18.98
|
29.8
|
9.06
|
0.43
|
10.3
|
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Oakton Limited
www.oakton.com.au
Oakton Limited is a consulting and technology company. It provides the following services.
Opportunity for the acquirer
Oakton's operating margin is dwindling from last 5 years, and it has gone down to 25.13% in 2007 to 9.26% in 2011. The tough business environment made it further difficult its efforts to improve its margins.
The company opened a 400 seater Hyderabad (India) facility in May 2011, as part of its efforts to cut its operational cost and the new facility garnered 12% of the total projects delivered by the company in 2011. This new center is expected to reduce "revenue per employee" number for the company, but may give a much needed boost to its falling margins.
- An Indian IT firm will be in a position to acquire the company at a very attractive valuation and create a turn around story by implementing effective measures to improve its Utilization (Currently 70%) and margins.
Oakton may not help Indian firms extend their offerings in the market with a differential model/product suit as its business is in the similar lines of Indian IT firms. But it can help them get a diversified customer base and garner a major share in Australian IT market.
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Technology One Limited
TechnologyOne
is an enterprise software solutions provider.
Its
integrated product suite includes:
Financial Performance over last 15
years
Revenue - 22% per annum compound
Initial License Fees - 22% per annum
compound
Annual License Fees - 27% per annum compound
Profit Before Tax - 20% per annum compound
Net Assets - 28% per annum compound
Key benefits of acquiring this company
It has recently expanded into UK which is expected to fuel the company's growth in the long term.
It is one of the very few companies in the world with an enterprise solution
It has proven products in the market which is cushioning its consistent revenue/profit growth. Its Licence fees average growth is 16% over the last 10 years and consulting is at 13%.
It has also opened a R&D center in Indonesia, to contain cost by leveraging its offshore R&D staff.
Revenue break-up in terms of its offerings (in AUD million)
Income growth over last 5 years (in AUD million).
Company is able to generate/grow profit even in difficult market conditions.
Overall, this company can be a best bet for Indian IT firms. Indian MNC's can take TechnologyOne's product suits beyond Asia, which can lead to financial synergies.
This company can also help diversify the revenue base of the acquirer by increasing its revenue stream from product offerings.
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ASG Group Limited
ASG is the sole Australian service provider with all the required
infrastructure, track record, investment & relationships in place as an
entity providing
ASG is a very strong contender in cloud services space and its strong partner base and comprehensive service
offerings place the company at an advantage over its peers.
It gets over 70% of its revenue from long term contracts and the remaining flows from consulting and other service offerings.
Many global organizations are approaching ASG to partner as both suppliers and clients.
ASG is delivering around 29% revenue growth from last 4 years and income growth is even better at around 32%.
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