30 April, 2015

Is Capgemini’s iGate buy expensive?

Has Capgemini paid a lot to secure a place in the US, the largest IT outsourcing market, by acquiring IGate?

Capgemini has offered to buy IGate Corp for $4 billion funded by internal cash, debt and equity.

This is 3.2 times IGate's annual revenue of $1.2 billion in 2014.

Some of the deals over the last four years, where small and midsized Indian IT companies were bought, the ratio was around 1.6 times. In addition, the deal value is over 15.3 times IGate's earnings before interest, tax, depreciation and amortisation (EBITDA) of $263.9 million in 2014.

It is marginally higher than the Bloomberg median of 14.6 for similar deals. This may make the IGate acquisition sound expensive.

For instance, Patni Computer Services was valued at over Rs 5,560 crore or 1.6 times its annual revenue when IGate acquired it in January 2011. In another deal, Baring Partner valued Hexaware at Rs 3,000 crore or 1.5 times sales during the August 2013 acquisition of the latter.

Analysts think that the premium is justified given the IGate's strong foothold in the North American market, which has been the biggest outsourcing market for IT vendors. Cap Gemini predominantly serves Europe with over 70% revenue coming from the region. After the acquisition, the Europe share will reduce to a half.

IGate's revenue increased at a three-year compounded annual growth rate (CAGR) of 18% in 2014. Net profit available for common equity holders rose at a CAGR of 28.4%.

A look at some of the deals struck a decade ago reveal that valuations were aggressive where the buyers identified operational synergies.

Oracle valued iFlex at 3.5 times sales during the 2005 acquisition worth Rs 3,960 crore ($909 million) at the time. In another deal during 2006, EDS valued Mphasis BFL at 3.5 times sales. 

29 April, 2015

Tencent takes on Alibaba, Xiaomi with open smart hardware operating system

China's Tencent Holdings Ltd launched on Tuesday an operating system for internet-connected devices such as TVs and watches that is open to all developers, taking on domestic rivals Alibaba Group Holding Ltd and Xiaomi Inc in the smart hardware space.

Tencent Operating System (OS) and TOS+ allow manufacturers and developers to freely use the platform if they agree to share revenue. This model mirrors Google Inc's Android mobile OS, and could help Tencent replicate the U.S. firm's conquest of the majority of the world's smartphones.

Tencent is the dominant social networking and online entertainment company in China, and the success of its OS would deepen its control over users' screens. Tencent's WeChat mobile messaging app is the most widely used for communication, and is also popular for shopping, gaming and other mobile services such as hailing a taxi.

"We want to inject more content into smart hardware systems and have connectivity across different terminals," Zhong Xiangping, head of TOS+, told the Global Mobile Internet Conference in Beijing.

Tencent, e-commerce giant Alibaba, which develops the Yun Operating System (OS), and smartphone maker Xiaomi have already made forays into smart hardware, with internet-connected TVs, fitness bands and air purifiers.

Their systems for both mobile and hardware offer an alternative to Google's services, many of which are unusable in China, including key features for Android, due to several factors including censorship and licensing issues.

Tencent said it wanted to layer the Android-based TOS+ over smart hardware, from TVs to watches and virtual reality headsets. That would mean playing games on a TV using a smartphone, or using a TOS+ smart watch to make payments from a handset, Zhong said.

Earlier this month, Alibaba formed a 'smart living' business unit as it races to introduce internet and computing capabilities to various kinds of everyday products.

The company's finance affiliate Ant Financial also teamed with Xiaomi to jointly develop mobile payment systems using wearable technology.

Baidu Inc, China's biggest search engine, is also developing its own Android-based smart watch OS, DuWear, compatible with Sony Corp, Lenovo Group Ltd's Motorola and LG Corp wearables. The DuWear Watch is set to go on sale in June.

28 April, 2015

Should ecommerce firms kill the website?

Even as a debate rages about Flipkart's decision to be available to customers only through its mobile app by next year, a growing crop of startups is considering tracing the path charted by India's most valuable online retailer.

At least half-a-dozen startups said they are firming plans to channel efforts and marketing dollars entirely on their mobile applications. 

Among these are local services startups Zopper, Doormint and LocalOye; online-first restaurants Holachef and Spoonjoy; online dating startup Truly-Madly; and on-demand grocery delivery firm PepperTap. 

More startups are likely to follow, especially those providing repetitive hyper-local services such as food delivery and home services firms, as they rush to capture key real estate on smartphones even at the risk of losing some customers, according to startup founders and investors.

Large ecommerce firms such as Flipkart, Snapdeal, Quikr, Ola and Myntra get 70-80% of their traffic from mobile devices, a key factor influencing Internet companies and startups to consider being app-on .. 

India's smartphone market grew 54% to 140 million devices last year, and is expected to reach 651 million in four years and be the largest mobile-first Internet market, according to Cisco.

Grocery delivery firm Peppertap, which gets 87% of its orders through its mobile app, also plans to shut its website after expanding in 10 cities by the end of the year, said CEO Navneet Singh. "We can give out better offers, notifications and messaging to customers without being too intrusive through the app."