Target cos not willing to sell: HTMT Global
SOURCE: The Hindu
DATE: Nov 3rd, 2008
Mohit Soapbox:
This is an interesting point of view from HTMT and we find very similar trends in the markets. The sellers are still reluctant to reduce their valuations for deals to complete. The valuations for niche firms have still not come down despite the slowdown and smaller firms are looking at additional belt tightening processes vs selling off at a reduced valuation. The eternally optimistic entrepreneur run organizations still believe that their sweat and blood is worth more than what the current markets are valuing them at. This is a challenge. We have a number of firms looking to buy specialized vendors but the due diligence process is taking longer and the valuations still continue to come down gradually.
The challenge would be that if an extended slowdown persists – the smaller firms have a survival issue on hand.
Though conventional wisdom says it is good to go in for acquisitions when valuations are at a low, buyers do not succeed every time, as sellers may not want to sell dirt cheap. The prevailing low valuations have hit the acquisition plans of the Bangalore-based HTMT Global Solutions Ltd, which has been in the market for some time scouting for potential targets.
The company, which is looking for buy-outs either to enter new geographies or to develop new service offerings, said targets are moving off the shelf because they do not think it is the right time to sell in the current valuations.
“In the current market situation, deals are really taking time to evaluate,” said Mr Partha DeSarkar, Chief Executive, HTMT Global. Though many might think it is the right time to buy because the valuations are low, the good assets will be a little hard to close, he added.
Mr DeSarkar said it does not make sense for quite a few of them to even talk about using stock as currency or to sell. “You might want to use stock as a currency to acquire, and the valuation that you will get of the stock is pathetic. If somebody has to put any of these companies for sale, the valuation you will see again does not make any sense.” So for many divesting groups, this is not the right time, he added.
Target geographies
As far as newer markets are concerned, HTMT is looking to grow its presence in the UK, China and Europe. The company is also looking to expand delivery centres in geographies such as Latin America, China and West Indies.
On being asked about the size of acquisitions, Mr DeSarkar said, “If it is in absolutely new greenfield areas, we do not really mind getting into smaller companies, but if it is more for scale, then obviously smaller size does not make sense.”
He said the acquisition process is ongoing. “We have been talking about this for quite sometime. It is getting delayed in that context.”
Budgets may be delayed
As far as the business slowdown is concerned, the pains would continue for not longer than six months, said Mr DeSarkar. The budgeting process for most companies would have started, he said. “What choice do they have? Whether they have visibility or not, they will have to finalise their budgets,” he added.
However, budgets may be delayed, he said. “It may happen, given the kind of unexpected shocks one has seen. It’s difficult to predict. Some of these things have come without any visibility,” he added.
Mr DeSarkar said in the medium-term, which is the next 12 to 18 months, things will pick up. When companies are under cost pressures, then offshoring and outsourcing makes a lot of sense. So once they are able to tide over the current difficulties, it will improve, he added.
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