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mosaiccapital mergers & acquisitions | private equity change your perspective see what makes the difference telecom - media - technology india image - a destination for cross-border m&a opportunities a discussion document march, 2008 private and confidential the india proposition – select economic criteria 4th largest economy in the world; 2nd largest GDP among the developing countries (based on purchasing power parity) over the past 15 years, has been the second fastest growing economy in the world, after China, with an average annual growth rate exceeding 6.5% displaced the US as the second-most favoured destination for foreign direct investment (FDI) in the world after China. (source: AT Kearney's FDI Confidence Index) probably the most preferred country for future R&D investments, with slightly more than 40 percent of CEOs indicating they will likely make such investments over the next three years most mature and well developed capital markets amongst developing countries key metrics 2005 Real GDP (% change) Nominal GDP (US$ bil.) 3-4 years of unabated “bull-run” based on record corporate growth & earnings have provided Indian companies the necessary foundation for expansion with minimal leverage modest inflation despite spiraling crude prices private and confidential 2007 9.2 8.6 7.9 808.9 897.8 1035 738 808 918 Consumer Price Index (% change) 4.2 5.8 5.7 Wholesale-Producer Price Index (% change) 4.7 4.9 5.4 6 6 7.25 Nominal GDP Per Capita (US$) Policy Interest Rate (%) 10.75 10.94 10.82 25291.9 29424.2 37114.7 Fiscal Balance (% of GDP) -4.1 -3.7 -3.6 Unemployment Rate (%) 12.8 12.2 11.9 Current Account Balance (US$ bil.) -9.2 -15.6 -22.4 Short-term Interest Rate (%) Broad Money Supply (LCU bil.) 2006 Current Account Balance (% of GDP) Trade Balance (US$ bil.) -1.1 -1.7 -2.2 -40.2 -53.9 -65.7 -5 -6 -6.3 Exchange Rate (LCU/US$, end of period) 45.06 44.24 45.12 Exchange Rate (LCU/Euro, end of period) 53.16 58.27 62.26 Trade Balance (% of GDP) 2 mosaiccapital mergers & acquisitions | private equity the india proposition – availability of funds FDI Inflows Foreign Capital Inflow (net) 19000 15000 10000 5000 2167 4031 6125 5036 4322 5987 US$ M illion US$ M illion 20000 7661 0 1999- 2000- 2001- 2002- 2003- 2004- 2005- 200600 01 02 03 04 05 06 07 private and confidential 30000 25000 20000 15000 10000 5000 0 28022 23400 16736 10184 8814 8551 10840 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 3 mosaiccapital mergers & acquisitions | private equity the india proposition – availability of funds Acquirer Temasek Holdings Consort ium Consort ium ICICI Vent ure Funds Carlyle Group Avenue Capit al USD 500 Target Bhart i Airt el GM R Inf rast ruct ure Bhart i Inf rat el Jaypee Inf rat ech HDFC SKIL Inf rast ruct ure M n Plus PE Deals - India Sector Telecom Real Est at e & Inf ast ruct ure M gt Telecom Real Est at e & Inf ast ruct ure M gt Banking & Financial Services Real Est at e & Inf ast ruct ure M gt Sect or W ise Break-up - Volume Value - USD M n 1,906.74 1,000.00 1,000.00 800.00 650.00 500.00 Sect or W i se Break-up - V al ue 17% 151 160 N o . o f D eals % Stake 4.99% 9.00% 10.00% N.A. 5.60% 26.00% 36% 4% 5% 120 80 2% 60 67 36% 61 Banking & Financial Services 31 40 35 IT & ITES Media, Ent ert ainment & Publishing 0 Banking & Financial Services private and confidential IT & ITES Media, Entertainment & Publishing Pharma, Healthcare & Biotech Real Estate & Infrastructure Management Pharma, Healt hcare & Biot ech Others Real Est at e & Inf rast ruct ure Management Ot hers 4 mosaiccapital mergers & acquisitions | private equity the india proposition – the global indian: cross border acquisitions Acquirer Tat a St eel Vodaf one Hindalco Indust ries Suzlon Energy Essar St eel Holdings Unit ed Spirit s Tat a Pow er Billion Dollar Plus M &A Deals Target Sector Corus St eel Hut chison Essar Telecom Novelis Inc Aluminium REpow er Pow er & Energy Algoma St eel Inc St eel Whyt e & M ackay Brew eries & Dist illeries PT Kalt im Prima Coal Pow er & Energy Value - USD M n 12,201.60 10,830.00 6,000.00 1,700.93 1,580.00 1,112.99 1,100.00 Deal Type Acquisit ion M ajorit y Acquisit ion Cont rolling St akr Acquisit ion Acquisit ion Signif icant St ake Any Involvement Asia M &A By Target Nation - CY 2006 Target Nation Deal Value (US$ M il) China Hong Kong India M alaysia Sout h Korea Taiw an Singapore Philippines Thailand Indonesia Industry Total 38,406.40 26,930.20 26,676.80 25,956.60 24,493.80 21,396.30 15,713.80 7,754.50 7,555.10 5,117.70 201,531.40 Number of Deals 1,913.00 765.00 1,141.00 873.00 255.00 175.00 465.00 128.00 268.00 117.00 6,216.00 * list excludes the take-over of Arcelor by Mittal Steel (essentially Indian promoter and management team) private and confidential 5 mosaiccapital mergers & acquisitions | private equity the india proposition – the global indian: cross border acquisitions Amtek Auto Zelter GmbH, Germany, GWK Group, UK, Lloyds (Brierly Hill), UK, Midwest Mfg. Co., USA, Tiplex-Kelton Group, JL French’s (Witham) Limited Asian Paints Delmege Forsyth (Sri Lanka), Pacific Paints (Australia), Berger International, SCIB Chemical (Egypt), Taubmans Paints (Fiji) Bharat Forge CDP Aluminiumtechnik, Germany, Federal Forge, USA, Imatra Forging Group, Sweden and Scotland Havell’s India Ltd SLI Sylvania lighting business, acquisition price USD 300 million Indian Hotels Hotels in Zambia and Australia Marico Sundari LLC, USA, consumer division of Enaleni Pharmaceuticals MindTree Consulting TES-PV Electronic Solutions Motherson Sumi Reiner Präzision GmbH and G+S Kunststofftechnik GmbH in Germany, Empire Rubber Reliance Communications Yipes Holding Inc, acquisition price USD 300 million Reliance Industries Gulf Africa Petroleum Corporation (GAPCO) Reliance Life Science GeneMedix Plc, acquisition price USD 28.80 million for a 74% stake Sterlite Monte Cello Corporation, Netherlands, the holding company of copper mines in Australia Sundaram Fastners Dana Spicer, UK, Peiner Umformtechnik GmbH, Germany, PUT Grundstucks GmbH Tata Tea Tetley, Good Earth, JEM_A, Glaceau VSNL Teleglobe International Holdings, Tyco Global Network Wipro Spectramind, GE’s healthcare software arm, global Energy practice of American Management Systems, Nervewire, US, Ericsson's Indian R&D arm, OkI Techno Centre Singapore private and confidential 6 mosaiccapital mergers & acquisitions | private equity the india proposition – Telecom and Media, Entertainment & Publishing India n Cr oss Bor de r M e dia , Ent . & Publishing D e a ls - CY 2 0 0 7 (U SD M n) Ta r ge t A cquir e r D e a l Size St a k e FunAsiA Pyramid Saimira N.A. Lumiere Inf init y Film Complet ion N.A. 25% S4 Ind Sof t w are 3.50 100% FX Labs St udio 3.00 100% Carlisle Publishing Knibble.com Indian Cross Border Telecom Deals - CY 2007 (USD M n) Target Acquirer Deal Size Til-Tex Ant enna Inc Kavveri Telecom Product s 2.50 Yipes Holding Inc Reliance Communicat ion 300.00 Voxmobili SA OnM obile 35.69 AEI Cables Paramount Communicat ions 26.50 ADA Cellw orks GTL Int ernat ional 25.00 IRP & pat ent s of Sigma Wireless Kavveri Telecom Product s N.A. Indian PE Telecom Deals - CY 2007 (USD M n) Investee Investors Asianet Sat ellit e Communicat ions Providence Ordyn Technologies Aureos Capit al Spice Telecom Consort ium M icroqual Techno Pvt Lt d Consort ium Bhart i Airt el Temasek Holdings Inf rast ruct ure unit of Reliance Communicat ions Consort ium Ast er Tow er Consort ium Tejas Net w orks Lt d Goldman Sachs Bhart i Inrat el Consort ium private and confidential Deal Size 66.67 9.30 30.00 10.00 1,906.74 337.50 35.00 22.09 1,000.00 100% Stake 100% 100% 100% 100% 100% 100% Stake N.A. N.A. 20% N.A. 5% 5% N.A. N.A. 10% Indian PE M edia, Ent. & Publishing Deals Deals - CY 2007 (USD M n) Investee Investors Deal Size Stake Madhouse Media Angel Investors 0.23 N.A. Tata Sky Temasek Holdings 55.56 10% UFO Moviez 3i Group 22.00 N.A. B.A.G. Infotainment IDBI 0.45 10% B.A.G. Infotainment Bank of Baroda 0.45 10% B.A.G. Infotainment Sameer Gehlaut 5.70 25% Nimbus Communications Consortium 125.00 N.A. Eenadu Group Blackstone Group 275.00 26% NDTV Networks Consortium 120.00 24% NDTV Networks Plc Com Ventures 20.00 N.A. INX Media Temasek Holdings N.A. 19% INX Media New Silk Route N.A. 20% INX Media New Vernon N.A. 6% Games2Win Consortium 5.00 N.A. India TV Fuse+Media 11.50 19% Hathway Cable Chyrs Capital 60.00 12% Prana Studio Sherpalo Ventures N.A. N.A. Hathway Cable Chyrs Capital 60.00 15% Kreeda Games Consortium N.A. N.A. Mindworks Global Media Helion Venture 15.00 N.A. Digicable Network Ashmore Investment N.A. 49% Right Angle Media Amwal Al Khaleej 35.35 N.A. Palador Pictures Consortium 6.00 15% B.A.G. Films & Media Fidelity 14.42 10% Percept Holdings Future Group 46.51 15% Hurix Systems Helion Venture 5.10 N.A. Live Media Draper Fisher Jurvetson N.A. N.A. Gemini Industries DE Shaw 55.81 N.A. mGinger Draper Fisher Jurvetson 1.50 N.A. mGinger NEA Indo-US Ventures 0.50 N.A. Dish TV Indivision Capital 58.14 5% 7 mosaiccapital mergers & acquisitions | private equity the Indian telecom market Indian mobile market to cross US$25 billion According to Gartner, Cellular services market in India in 2011 is expected to be US$25.6billion. Total earnings of cellular services market in 2006 was US$8.95 billion and would reach US$25.617 billion by 2011 growing at a compounded annual growth rate (CAGR) of 18.4%. Cellular market penetration is also projected to increase from 12.7% in 2006 to 38.6% in 2011 The overall penetration will primarily be driven by an increased focus on rural market. By 2011, Gartner expects 58% of the rural population and 95% of the urban population to be covered with mobile connections. It is indicating that there was still scope for reducing mobile tariff, although call rates have reduced to about 2.6 cents per minute, it remained high compared with fixed-line rates at 0.9 cents per minute Rural market presents immense growth opportunities as mobile penetration was just 2%. Many firms are planning to tap this market by introducing handsets that would cost below Rs1,000 private and confidential 8 mosaiccapital mergers & acquisitions | private equity the Indian telecom market Current Statistics The total number of telephone subscribers has reached 264 mn at the end of November 2007 of which 225 mn were mobile subscribers and 39 mn were fixed/landline subscribers. The overall tele-density improved further to 23% in November 2007 compared to 22% in October 2006. The Average Revenue per User (ARPU) for the GSM, CDMA and broadband services segment were at Rs275, Rs173 and Rs200 respectively. private and confidential 9 mosaiccapital mergers & acquisitions | private equity the Indian telecom market Wireless mobile segment Wireless segment has yet again witnessed a feverish growth with the total subscriber base touching 225m in November 2007 compared with 143m in November 2006 and adding up 60.3m subscribers during Apr-Nov 2007 Lower handset prices coupled with an increased urge to stay connected while on the move have been driving the growth in wireless segment Wireless penetration currently stands at 20.4% (up 69bps MoM) The wireless-to-fixed penetration is at ~495% and wireless-to-total penetration is at ~85.6% Bharti, RCOM and Vodafone were major gainers in absolute terms on a MoM basis private and confidential 10 mosaiccapital mergers & acquisitions | private equity the Indian telecom market GSM mobile segment The GSM segment comprises 72% of the overall wireless market The total number of subscribers in the metro region jumped by 41% to 54.1 mn during October November 2007 compared with same period of 2006 Subscriber base in Circle A touched the 90 mn mark during October-November 2007, growing by 29% Circle B registered a decline of 6% in subscriber base during October-November 2007 compared with same period of 2006 Circle C has market share of just 14% in all India mobile users, with a subscriber base of 19.6 mn – this circle showed 80% growth during October-November 2007 compared with same period of 2006 GSM service providers are rapidly enhancing coverage and reach of service, which is getting reflected in the healthy subscriber growth CDMA mobile segment The CDMA market is witnessing stiff competition with players like Reliance Communications and Bharti Airtel losing ground to Tata Teleservices over a period of time Revenue from call charges comprised 62% and rental charges 18% of the revenues of the CDMA players private and confidential 11 mosaiccapital mergers & acquisitions | private equity the Indian telecom market private and confidential 12 mosaiccapital mergers & acquisitions | private equity the Indian telecom market Wire-line segment The wire-line subscriber base declined yet again to 39.31 mn in November 2007 compared with 39.41 mn in October 2007 Although the private players witnessed growth in subscriber base, it was the public companies that lost the ground and dragged the growth The wire-line segment is still led by PSUs – BSNL dominance in the fixed line remained intact with a market share of 82%, followed by MTNL at 9%; Bharti Airtel remained the leader amongst the private players, garnering a share of 5%, BSNL commands 73% in the urban landscape and almost cent percent in the rural areas Internet & broadband segment India currently has 72 broadband service providers, having a subscriber base of 2.87 mn as of November 2007 Out of the 72 broadband service providers, only 13 service providers are having subscriber base more than 10,000 and these providers share 98% of the total market There were 9.63 mn wire-line Internet subscribers at the end of September 2007 compared to 9.22 mn at the end of June 2007, registering a growth of nearly 4.37% The growth trend indicates a slight increase in the market share of PSU-owned internet service providers (ISPs) vis-à-vis private operators The growth in Broadband segment has not been satisfactory – it is still slow and below the expected levels As per the recent TRAI proposal, companies like BSNL and MTNL should be allowed to appoint franchisees and spectrum for 3G and WiMAX should be made available at the earliest to boost the deployment of broadband using these technologies The regulator has also laid down policies for hastening implementation of Internet protocol TV (IPTV) platform across the country private and confidential 13 mosaiccapital mergers & acquisitions | private equity the Indian telecom market private and confidential 14 mosaiccapital mergers & acquisitions | private equity the Indian telecom market Operating strategy: Stay big; get bigger; expand world-wide All of the Indian telecom majors, both private, namely: Reliance Communications, Bharti Televentures, Tata, AV Birla Group, Aircel, Essar; and government owned namely: MTNL and BSNL – all have explicit intents to expand world-wide – with special emphasis on emerging markets such as Africa and Asia Reliance, Bharti, MTNL and other Indian companies have already made moves in acquiring licenses in various countries in Africa including those in Kenya, Gabon, Tanzania, etc VSNL (Tatas) and Flag (Reliance) already together rank as worlds second biggest ethernet backbone in the world Scale is a key competitive strength in this business segment and RCOM’s recent moves reflect an ambition to leverage this facet to drive growth. It recently announced the completion of FALCON, a 2.5Tbps sub-sea cable system which connects 11 countries in the Middle–East with the FLAG’s existing cable system. RCOM also intends to spend $1.5bn over the next three years to build an IP-overlay on FLAG’s sub-sea cable network. Though bandwidth sales and IRUs currently account for the largest portion of revenues, IP-based services are the fastest growing segment. RCOM faces significant competition from VSNL which is also gearing up to focus on this profitable market segment Bharti Airtel, which had earlier bagged the licence to become Sri Lanka’s fifth GSM-based service provider, will launch second and third generation mobile services in the island nation by the end of the current fiscal and invest about US$200m by 2012. Bharti will have to compete with the Telekom Malaysia-owned Dialog Telecom (the largest operator in the country), Celltel Lanka (owned by Luxembourg-based service provider Millicom International private and confidential 15 mosaiccapital mergers & acquisitions | private equity the Indian media market The Indian entertainment and media industry is one of the fastest growing industries and has outperformed the Indian economy According to FICCI PwC report, the television industry revenues are expected to grow from the present Rs 191 bn (USD 4.77 bn) to Rs 519 bn (USD 12.97 bn) by 2011, implying a 22% compounded annual growth rate The radio industry recorded a growth of nearly 58% in 2006 – the share of radio in the total advertising industry increased from 2.4% to 3.1% during the year According to PwC report, the print industry is expected to grow from Rs 128 bn (USD 3.2 bn) in 2006 to Rs 232 bn (USD 5.8 bn) by 2011, at 12.6% CAGR Currently, the size of film industry is estimated to be around Rs 230 bn (USD 5.8bn), which is supposed to be the largest in the world The Indian media and entertainment industry will grow at twice the rate of the country’s GDP in a few years, driven largely by the emergence of regional players, technology and digitisation private and confidential 16 mosaiccapital mergers & acquisitions | private equity the Indian media market private and confidential 17 mosaiccapital mergers & acquisitions | private equity the Indian media market private and confidential 18 mosaiccapital mergers & acquisitions | private equity the Indian media market Radio industry The radio industry recorded a growth of nearly 58% in 2006 The share of radio in the total advertising industry increased from 2.4% to 3.1% during the same year This is further expected to increase to 5.5% by 2011 as per the FICCI-PwC report on the Indian entertainment and media industry The size of the radio industry is projected to increase at a CAGR of 28% from Rs 5 bn in 2006 to Rs 17 bn by 2011 The major advertisers on radio are the entertainment channels, real estate firms and retailers - all these industries are expected to witness robust growth in the years to come More than 90 channels across various languages and genres are being launched this year Film industry The Indian film industry is the biggest film industry in the world in terms of number of viewers, with an audience of more than 3 billion compared with Hollywood’s 2.6 billion globally The size of the Indian domestic film industry is likely to double to Rs 400 bn (around USD 10 bn) in the next three years, creating employment opportunities for about 6m people by 2010 Currently, the size of film industry is estimated to be around Rs 230 bn (around USD 6 bn), which is supposed to be the largest in the world - it produces 800 films in different languages and earns nearly USD 100 mn of foreign exchange private and confidential 19 mosaiccapital mergers & acquisitions | private equity the Indian media market Print industry The structure of the Indian print media industry is highly fragmented with regional dominance The Indian print media segment primarily comprises newspaper and magazine publishing According to PwC report, the print industry is expected to grow from Rs 128 bn in 2006 to Rs 232 bn by 2011, at 12.6% CAGR While the newspaper industry is estimated at Rs 112 bn, the magazine segment is valued at Rs 16 bn Print media – revenues The primary source of revenues for a newspaper companies is advertising and subscription - the other sources include providing news to other agencies and sale of scrap paper The subscription revenues formed nearly 39% of the total print media revenues of Rs 128 bn in 2006 Print ads have the highest share of the ad pie in the media industry – dailies and magazines combined had a share of 48% of the total Rs 131 bn advertising revenues in 2005 Looking ahead, print media would continue to dominate other media in terms of revenues from advertising, with a market share of 46% of the total ad spend (Rs 293bn) by 2010 Advertising revenues formed 61% of the total print media revenues in 2006 and is expected to touch 66% of the total Rs 206 bn revenues in 2010 private and confidential 20 mosaiccapital mergers & acquisitions | private equity the Indian media market Television The television industry in India has come a long way from the time when only a couple of Doordarshan channels were broadcast for a limited duration of the day Today, there are 300 channels across various languages and genres catering to audiences 24 hours a day The size of the industry is estimated to be approximately Rs 191 bn - with 112 mn TV households, India is the third largest television market in the world, next only to China and the US Regulations The Ministry of Information and Broadcasting is aiming for a further cut in entertainment tax to 25-30% - with technology and digitisation fuelling the 18% CAGR, a tax breather will only enhance the growth FDI Cap for FM Radio may be raised to 26% - retaining the current 20% FDI cap in radio companies, Government may allow an additional 6% for FIIs and others India to increase cable TV foreign investment cap - India is set to raise the foreign direct investment limit in cable television to 74% from 49% and allow 100% ownership in down linking general and entertainment channels private and confidential 21 mosaiccapital mergers & acquisitions | private equity the Indian media market Outlook The Indian media and entertainment industry will grow at twice the rate of the country’s GDP in a few years, driven largely by the emergence of regional players, technology and digitisation Around 28% of the 100 mn pay TV households would be going digital by 2010, as a result of this trend In a digitised Indian media and entertainment environment, DTH would emerge leader over the next three years, while IPTV would gain close to 1m subscribers by 2010 A booming Indian economy, literate population on the rise, increasing consumerism, entry of global brands in the country and opening of the sector to foreign investors would drive the growth in print media Newspaper companies entering into newer regions and segments would lead to stronger growth - with the economy expected to be robust and increasing penetration of newspapers, the advertisement revenues are expected to remain strong The share of the print media in the total ad pie is expected to go down due to increasing competition from other forms of media like the Internet – the Internet has emerged as the most actively used medium for news, as it offers instant news just like television and has a long shelf-life like newspapers private and confidential 22 mosaiccapital mergers & acquisitions | private equity the india proposition – Information Technology & ITeS India n Cr oss Bor de r IT & ITe S D e a ls - CY 2 0 0 7 (U SD M n) Ta r ge t A cquir e r D e a l Size AdDynamix Ybrant Technologies 10.00 eSys Technologies Teledat a Inf ormat ics 105.00 Global Vant edge Aegis BPO 22.22 Thought Digit ial Zensar Technologies 24.90 BPO Lason HOV Services 148.00 ICE Ent erprise Solut ions Genpact N.A. Valley US Quint egra Solut ions 9.50 JadeLit e Technologies Quint egra Solut ions 1.00 Links Group Int ernat ional Paradyne Inf ot ech 4.75 Emacs Technologies Core Project s & Technologies 3.00 Massif Technologies Nihar Inf o Global 0.03 Seenet ix Ybrant Technologies N.A. Dynat ex ISGN N.A. West Talk Corporat e Trit on Corp N.A. New Begininings Finance Trit on Corp N.A. Rubicon Group EMR Technology Vent ures 20.00 TCS Brasil TCS 33.40 Com Creat ion Inc Cambridge Technology 3.50 Cross Roads Det ailing Moldt ex Technologies 1.30 DCI Digit al Communicat ions Kaveri Telecom Product s 2.20 DGIT Solut ions ORG Inf ormat ics N.A. Capco Capit al Market s i-Flex Solut ions N.A. BPM Inc First Source Solut ions N.A. Solt ius Pt e Teledat a Inf ormat ics 45.00 Syndesis Limit ed Subex Azure 164.50 Dunn Solut ions Cranes Sof t w are 13.95 Logan Orviss Pat ni Comput ers N.A. Ask n Learn Educomp Solut ions 3.88 FLovat e Technol WNS Holdings N.A. Orion Technology Rolt a N.A. US based company Maples ESM N.A. Benson Transcript ion Bhilw ara Scribe N.A. Met rikus Persist ent Syst ems N.A. Bost on Communicat ions Group Megasof t Lt d 65.00 Philips Global Finance Inf osys Technologies 28.00 Tarat ec Development Corp Pat ni Comput ers 27.20 private and confidential 23 St a k e 100% N.A. 100% 100% 100% 100% 100% 100% 100% 100% 51% 100% 100% 100% 80% 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 83% 100% 100% mosaiccapital mergers & acquisitions | private equity the india proposition – Information Technology & ITeS Indian Cross Border IT & ITeS Deals - CY 2007 (USD M n) Target Acquirer Clearorbit Take Solut ions Consult ancy division of Logist ics Solut ions Kaashyap Technologies Vect or Insurance Services M ast ek Reckon Up Logix M icrosyst ems Pref ered Financial Group Quat rro BPO Inf ocrossing Inc Wipro Technologies TekSof t Inc Geomet ric Solut ions M edAssist Holdings First Source Solut ions Four Lakes Colorgraphics M urugappa Group Zavat a Inc Apollo Hospit als Zero Oct a Kale Consult ant s Telecom Service Cent re Hero Group Converso Cont act Cent res Usha M art in Group Apex Document Solut ions Tricom India Savicca Educomp Solut ions Host Depart ment Net t linx LTD Okl Techno Cent re Wipro Technologies Comnet Int ernat ional Inf init e Comput er Solut ions Azzurri Educat ion Core Project s & Technologies KC M anagement Group Core Project s & Technologies Hamlet Comput er Group Core Project s & Technologies LocaM oda Inc M ahindra & M ahindra & Reliance Port Terminals Kingdom Builders Allsec Technologies PA Corporat ion Quint egra Solut ions Indust ronics Berhad Ruia Group Cast ek Sof t w are i-Flex Solut ions J&B Sof t w are 3i Inf ot ech NINt ec B.V. Gat ew ay Technolabs Nit or Global Solut ions Sat yam Comput ers Agadia Syst ems Prit hvi Inf ormat ion Solut ions Ohio based KPO M old Tek Technologies TES-PV Solut ions M ind Tree Consult ing Int ernat ional Innovat ions Inc Calif ornia Sof t w are Company Capit al M arket Solut ions Fort is Financial Services Int egro Technologies Aurionpro Solut ions Huron Graf f enst aden Jyot i CNC Aut omat ion Oridian Ybrant Technologies Upst ream & Travelport ISO Int elnet Global Services Dalglen Hero Group Inat ech Inf osolut ions Calif ornia Sof t w are Company Reps Resources CS Sof t w are Ent erprise private and confidential 24 Deal Size 20.60 8.50 4.50 4.00 N.A. 600.00 N.A. 330.00 110.00 180.00 N.A. 80.00 N.A. 2.00 N.A. N.A. N.A. N.A. 30.00 12.00 3.00 6.18 1.50 49.00 N.A. N.A. 25.25 N.A. 5.50 4.50 2.00 6.55 1.32 N.A. N.A. 55.81 13.00 75.00 74.42 6.17 N.A. Stake 100% 100% 90% 100% 100% 100% 18% 100% 100% 100% 100% 100% 100% 100% 70% 100% 100% 100% 100% 100% 100% N.A. 100% 100% 30% 49% 100% N.A. 100% 100% 100% 100% 100% 76% 100% 100% 100% 100% 100% 49% 51% mosaiccapital mergers & acquisitions | private equity the Indian information technology & ITeS market The services sector is one of the most significant sectors of the Indian economy, contributing nearly 55% to the GDP in 2006–07 The sector continues to be the key driver of economic activities holding a share of more than 44% of GDP. The contribution of the IT industry to the country’s economy is increasing - the industry’s contribution to the nation’s GDP has gone up to 5.4% in FY07 as against 4.8% in FY06 The Indian ITES-BPO segment continues to chart strong year-on-year growth, witnessing high levels of activity both onshore and offshore The IT software services and BPO industries have had a mixed year (2007) – the rupee played spoil sport, but top players reacted quickly in tightening the slack in the system The year 2008 promises to bring in newer growth opportunities, potentially billion dollar ones, for the Indian IT industry The export-driven Indian IT/ITeS industry — which has been dominated by application development and maintenance (ADM), voice-based BPO services and BFSI vertical — could see new and niche areas scaling up rapidly Growth of IT services market is primarily being driven by growth of the economy, small and midsize businesses, government projects and increased customer focus – Indian IT services market is pegged to grow to US$10.73 billion by 2011 with anticipation of more contracts from firms, grappling with high attrition of IT staff private and confidential 25 mosaiccapital mergers & acquisitions | private equity the Indian information technology & ITeS market ITeS-BPO Segment The Indian ITES-BPO segment continues to chart strong year-on-year growth, witnessing high levels of activity both onshore as well as offshore The industry is moving up the value chain into KPO to raise profits BPO market prospered with year-on-year TCV (Total Contract Value) growth of 147% for 2007 The current hot spots in KPO industry are engineering and design, basic data search, integration and management and biotech and pharma These opportunities in the KPO will help the Indian market climb the global value and knowledge chain private and confidential 26 mosaiccapital mergers & acquisitions | private equity the Indian information technology & ITeS market private and confidential 27 mosaiccapital mergers & acquisitions | private equity the Indian information technology & ITeS market Industry Trends BPO entities have been at the front position of large mergers and acquisitions (M&A) in the Indian IT space as compared to IT services firms India's knowledge process back-office (KPOs) firms are venturing overseas for acquisitions as they scaleup, struggle for talent, try to beat a rising rupee and face competition from big software firms Indian firms are looking to partner with or acquire local firms in Germany in an effort to tap European market for offshore IT services which, apart from growing at a fast clip, is also emerging as a natural hedge against a slowdown in the US, which accounts for the bulk of their business BPO services that are moving into Tier 2 and 3 cities and it is now expected that IT services will follow suit, though at a slower pace Outlook Indian domestic IT/ITES market revenue is likely to reach Rs1,100 billion in 2008, an increase of 24% growth For the domestic IT/ITeS sector, 2008 would also mark the beginning of the second growth phase characterised by the opportunities arising out of leveraging the IT infrastructure built up With the slowdown in the US economy, a strong rupee and questions over extension of the STP scheme looming large, 2008 will be a crucial year for the Indian BPO industry Global clients will turn to new countries as inflation and employee turnover in Indian cities like Bangalore and Pune will frustrate them – talent shortage will push them to Tier-II within India, and to Latin America, Eastern Europe and Asia. Canada, Brazil, Chile, Costa Rica and Mexico will be some of the new hot spots in providing sourcing solutions private and confidential 28 mosaiccapital mergers & acquisitions | private equity the Indian information technology & ITeS market IT Software Services (ITSS) Segment The IT software services and BPO industries have had a mixed year (2007) Large IT companies with robust margins suffered an impact on their bottom line, but were able to absorb or even counter the effect - however, the smaller ones, which had lower margins, were hard hit. More and more global corporations are trying to improve their cost efficiency and thus outsourcing their technology requirements to low-cost countries like India private and confidential 29 mosaiccapital mergers & acquisitions | private equity the Indian information technology & ITeS market private and confidential 30 mosaiccapital mergers & acquisitions | private equity the Indian information technology & ITeS market Industry Trends The Banking and Financial Services (BFS) vertical forms the largest contributor to the total IT services revenue in India, and has maintained its lead over other verticals for a considerable number of years, almost 38% of the US$24 billion IT services business IT companies are looking for ways to extend their value chain and bolster bottom-line – the uncertainty and cutting costs are some of the aspects which the IT companies would have to keep in mind during 2008 After sustained focus on Western shores, China is now high on their charter for Indian IT services providers The year 2007 appears to have been a year of consolidation for the security industry with organisations demanding better performing and flexible security solutions with constrained budgets and vendors responding with consolidated offerings With the US slowdown and a depreciating dollar, US tech firms are likely to push for export-led growth for earnings - hence, the Indian market is emerging as a hot spot growth area Outlook According to Gartner, Indian IT services market is pegged to grow to US$10.73 billion by 2011 with anticipation of more contracts from firms, which are grappling with high attrition of IT staff The market segments that are expected to witness strongest growth are consulting, IT management and business process management services with five-year CAGR of 28.1%, 23.8% and 27.1% respectively However, some risks pertain to this scenario including uncertainty over the future evolution of the tax regime governing computer manufacturers and importers, and rupee appreciation IT sector faces moderate threat through resource crunch, weakening dollar, sub-prime crisis and recession fears in the US private and confidential 31 mosaiccapital mergers & acquisitions | private equity key contact information Sanjay Krishnan London [email protected] hand phone: +44 (0) 7738321449 facsimile: +44 (0) 208 711 3943 Vinay Shah & Ashutosh Ghanekar Mumbai [email protected] hand phone: +91 (0) 9967642785 facsimile: +44 (0) 20 66325631 Vikram Bihani Bangalore [email protected] hand phone: +44 (0) 9886409387 facsimile: +44 (0) 80 25091532 private and confidential 32 mosaiccapital mergers & acquisitions | private equity