Computer Sciences offers IT firms a Delphi-type chance

MUMBAI: The news that Hewlett Packard and private equity major Blackstone may together be bidding for Computer Sciences Corporation (CSC), the $12 billion software services and solutions provider, should stir Indian software services companies up.

CSC represents the same opportunity that Indian auto component players saw when Delphi announced that it was going bankrupt and that the multi-billion dollar auto component player would be split into pieces and auctioned off.

The acquisition of CSC by any company has the potential to redefine the marketplace and establish the acquirer as one of the biggest players in the IT services space.

A good reason why a TCS, an Infosys, a Wipro or a Cognizant should team up with a private equity player and make an aggressive bid for CSC.

HP, too, is looking at CSC for very much the same reasons. Despite HP having a large services business, it is widely known to be a leader in its hardware and infrastructure business, but is not talked about in the same breadth as IBM Global Services and Accenture in the services space. If this deal goes though, HP could potentially get there in terms of mindshare.

But this is not as much about HP’s potential strengthening of its leadership position in the IT Services space, as much as it’s about Indian companies and what a potential acquisition of CSC could represent.

And unlike the Indian auto component players, financial preparedness is not an issue.

CSC’s owners want a valuation of about $12 billion and if the market capitalisation of companies is anything to go by, large offshore companies like TCS, Infosys, Wipro and Cognizant, then nothing stops these Indian based vendors from teaming up with a private equity player like Blackstone or Texas Pacific and making a bid.

After all of the top five software services players by market cap, Indian companies occupy slots two to five.

Buy why should Indian players even consider taking a look at CSC?

If CSC is going to be split as is being talked about then Indian companies could bid for different slices. For example, getting the government business of CSC could propel the offshore companies to play a game in a space that has historically eluded it.

The US government business, which run into tens of billion dollars, is something that offshore companies have started looking at. Recently, at a high profile visit of a US government functionary, TCS made it clear that it is keen on the US deals and wanted the functionary to facilitate participation of Indian IT companies for large deals form the likes of the navy, state healthcare entities.

That apart CSC’s commercial business could be a big attraction for Indian companies as CSC is far more advanced in building platforms that address specific business problems of industries, which is not an area that Indian companies have traditionally invested in. This could help Indian companies to increase customer productivity in a big way and handle high volume transactions at lower cost.

One good example is a press release issued by CSC, wherein it introduced a straight-through processing platform for life insurance and annuities that reduces the time to issue insurance policies and increases producer productivity. Indian companies have found a need to get into the “platforms” business, something that propelled TCS to go in for the Pearl type of acquisition in the UK.

Coupled with this is the increasing need for Indian companies to farm out a global footprint, gain access to consulting type of capabilities, deals such as these involving thousands of people-although is a cultural integration nightmare-is what can people their top line growth.