Silicon Valley: Wipro's USD 600 million planned acquisition of the US-based infrastructure management services provider Infocrossing signals a new trend that will see Indian companies enter mega-deals to acquire more American firms in the near future, according to an analyst.
"Indian companies are sitting on a lot of cash, USD 500 million to USD 1 billion," Ameet Nivsarkar, Vice President of research at Nasscom told the InformationWeek in an interview.
In addition, the valuation of Indian IT companies is high compared with US companies right now, said Nivasrkar. "This is the right time to do these large deals," he added.
While big, the Wipro-Infocrossing deal isn't even the largest cross-border outsourcing acquisition this year, says the online technology news website.
In June, the global IT services firm Caritor, headed by Chairman and CEO Mani Subramanian, acquired US IT body shop Keane in an USD 854 million deal. Although based in California, Caritor's 3,900 employees are predominately in India.
"It's definitely possible" that there will be more of these bigger deals, Nivsarkar said.
Among the drivers for these deals is the United States' cap on H-1B visas, which isn't likely to be raised from the current ceiling of 65,000 anytime soon.
Another factor spurring the acquisition spree is the Indian government's decision to relax restrictions on the amount of foreign exchange that is allowed to enter India.
"Now the country is flush with foreign exchange. Indian companies (that have acquired overseas firms) sell products in dollars and take part of that money to India, some of which ends up in government coffers," said Jagmohan S Raju, a Wharton marketing professor.
In addition, Indian companies now have greater power to raise money in US capital markets because investors have grown more familiar with businesses in India, he said.
Still, while other Indian IT outsourcers could follow Wipro's recent example by acquiring American IT services firms in coming months or years, that strategy for US expansion isn't as easy as it might seem, Nivsarkar said.
"Acquisitions in the IT services sector (between companies in India and the United States) tend to be more difficult than acquisitions in other industries, like manufacturing, because of the cultural differences," he said.
So Nivsarkar predicts that most Indian companies eyeing acquisitions in the United States are probably more likely to tip-toe into this type of strategy.
"They're likely to go slow," he said.
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