Tata Consultancy Services (TCS), India's largest IT services provider, is creating beachhead as it expand its presence in Continental Europe with the acquisition of France-based Alti SA for Euro 75 million (around Rs 533 crore).
The acquisition, one of the largest for TCS in Continental Europe and one of the first by any of the large Indian IT services players, also signifies how the company wants to increase its presence in Europe other than UK.
Though in 2006, TCS had acquired Swiss-based TKS-Teknosoft for CHF100.5 million, it was a smaller acquisition compared to the current one.
The acquisition is important for two reasons. First, though Europe's contribution to TCS is 26.6%, Continental Europe's contribution is just about 9.1%. Chunk of revenues continue to come from UK. Other than France Alti has presence in Belgium, Switzerland and Algeria and has a total headcount of 1,200 employees.
Two, assessed at over Euro 30 billion, the France IT Services market is largest in Europe, after the UK and Germany. TCS has been operating in France since 1992 and has over 50 clients in the country, including several of the CAC 40. This acquisition will give TCS access to several European clients.
Some of these include, Axa Banque, Banque de France, BNP Paribas, HSBC, Societe Generale. Insurance, Air Liquide, Alcatel Lucent, Mercedes Benz, L'Oreal, Sanofi Aventis, Thales, and Air France. More importantly, it will also give TCS access to the French public sector with clients such as Agency Financial Computerisation of State, National Library of France, OECD, NFB, Unesco, and City of Paris among others.
In the past too, N Chandrasekaran, CEO and MD of TCS had suggested that the company is keen to acquire and asset in Continental Europe that will allow it to bridge the language barrier and give access to key clients. Rather the company did make attempt to acquire Lufthansa IT Systems, the captive IT unit of Lufthansa airline in 2011. However, the deal did not work due to valuation and labour issues.
"This acquisition underlines our long-term, strategic commitment to France, which is the third largest IT services market in Europe. The acquisition of Alti SA will help us serve our clients in France and across Europe more comprehensively with an expanded set of services and solutions, bringing the best of TCS to French corporations," said N. Chandrasekaran, CEO and Managing Director, TCS.
In the past 15 years, Alti has established built expertise in business consulting and SAP, new technologies and Business Intelligence. The company claims to have grown by 20% year-on-year.
Alti SA is a privately held company owned by its management and two private equity funds-CM-CIC LBO Partners and IDI-which supported its growth from a revenue base of Euro 64 million (around Rs 455 crore) in 2007 to Euro 126 million (around Rs 895 crore) in 2012.
The firm is considered among the top five system integrators of enterprise solutions in France and its key customers include several top French corporations in banking, financial services, manufacturing, utilities and luxury sectors.
M&A to enter new market and gain larger market share
TCS has preferred to enter new markets through inorganic route and built these acquisitions further to add value. Take the case of UK. TCS acquired Pearl Group in 2005. This not only allowed TCS to make inroads into the insurance segment in UK, which was traditionally the sweet-spot for players like Capita, but it also allowed the company to create platform-based insurance offering in the BPO segment. Along with the acquisition TCS also entered into a 12-year Euro 486-million BPO deal. Since then it has added more clients and the its subsidiary, Diligenta also became profitable.
In Asia Pacific too the company has used the same strategy. For instance, when it entered China in 2007, to tap the domestic market, it chose the joint venture route rather than go alone.