India’s HCL Targets ‘Aggressive’ Acquisitions Amid European Debt Crisis

By Beth Mellor - Dec 8, 2011

HCL Technologies Ltd., an Indian provider of technology services whose clients include Deutsche Bank AG and GlaxoSmithKline Plc (GSK), said the European debt crisis will help it to buy and partner with local companies.

The New Delhi-based company targets deals in the Nordic countries, Germany and France because continental Europe is the “biggest growth area for us,” Chief Executive Officer Vineet Nayar said in an interview in HCL’s London office. Clients often want to work with a local vendor and HCL will pursue “aggressive partnerships in the local markets and aggressive acquisitions,” he said.

Potential targets are probably more “open for acquisition” as a result of the current economic crisis, Nayar said. HCL’s order pipeline is “bigger than ever before” and the company plans to expand offerings for data analysis and cloud computing, which let clients rent software delivered over the Web rather than install it on their own machines.

Indian IT and software companies are benefitting from rising corporate spending on computer services and from governments trying to improve efficiency with technology as budget cuts bite. HCL bought U.K. software provider Axon Group for $658 million in 2008, its biggest ever deal. Indian rival Tata Consultancy Services Ltd. (TCS) said in September it was weighing acquisitions in France, Germany, Japan and the U.S.

“All large Indian IT companies are looking at the M&A game more closely, given that valuations have come down in Europe,” said Standard Chartered analyst Pankaj Kapoor, who has an “outperform” rating on HCL shares.
Search for Value

Before today, HCL had dropped 8.4 percent in Mumbai trading this year, valuing the company at $5.6 billion.

HCL doesn’t plan to expand its U.K. presence and would only be interested in British companies with a strong continental European footprint, Nayar said.

HCL is also benefitting from the current economic climate as more companies and governments are ditching their existing information technology service providers and searching for partners that offer better value, he said.

The $1 trillion information technology services market is “at the beginning of a phase of further disruption, similar to the one the low-cost airlines have brought in the transportation industry,” because of “low-cost” cloud-computing services, researcher Gartner Inc. said Dec. 1.

Gartner in October predicted worldwide enterprise IT spending will rise by 3.9 percent to $2.7 trillion in 2012. While growth will slow from a predicted 5.9 percent increase in 2011, the researcher said that “despite the global economic challenges, enterprises will continue to invest in IT.”
Phone-Hacking Probe

The HCL CEO reiterated that the company is cooperating with the U.K. Home Affairs committee and Metropolitan Police in a phone-hacking inquiry at News Corp.’s U.K. publishing unit.

HCL, which won a five-year contract to manage News International’s data center and networks in 2009, said in a letter to U.K. lawmakers this year it was asked for assistance in deleting e-mails nine times between April 2010 and July 2011.

In January 2011, the month when News Corp. began handing information to the police, the company requested help to “truncate a particular database,” according to the letter. HCL said it wasn’t able to handle the request and suggested another company.

Nayar said it is “common practice across all customers” for IT services providers to be asked to delete data, and that “only the customer knows what the data is.” He also said that “we don’t store the data and therefore the actual deletion was done by some other agency.”

To contact the reporter on this story: Beth Mellor in London at bmellor@bloomberg.net

To contact the editor responsible for this story: Simon Thiel in London at sthiel1@bloomberg.net
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