Goetz Partners managing director Stephen Goetz with Avendus managing director Ranu Vohra in Mumbai on Monday. (Fotocorp)

Mumbai, Feb. 5: Indian companies could exploit the $287-billion IT services opportunity in Europe through mergers and acquisitions (M&As), a research report by investment bank Avendus Advisors has said.

According to the report, 2007 could be a watershed year for Indian vendors and they could foray into Europe with several small to mid-sized acquisitions and a couple of “large transformational ones”.

Avendus, which is India’s leading investment bank in the mid-market segment, focuses on cross-border M&As, private equity fund-raising, equity capital market and debt solutions for high growth companies.

The report said factors such as positive economic environment, increasing maturity in outsourcing, enterprise-wide integration, increasing competition and higher regulatory compliance requirements, along with increasing pressure on IT budgets and tight labour markets across Europe are likely to drive outsourcing and offshoring of IT services.

While the European IT services market is expected to grow at a compounded annual growth rate (CAGR) of 5.8 per cent from $217 billion in 2006 to $287 billion in 2010, the market for offshore IT services is expected to grow at a rate of 60 per cent through 2009, offering a huge opportunity to Indian IT services companies.

However, the report added that barring a few, most Indian IT services companies have concentrated on the UK market and have a marginal presence in Continental Europe — a market with a combined size of $108 billion. This includes Germany at $37.2 billion, France at $26.4 billion, Nordics at $18.5 billion, Italy and Spain.

Continental Europe, Avendus says, is currently dominated by global IT firms from the US (IBM, Accenture, EDS), pan-European companies (CapGemini, Logica CMG) followed by a large number of mid-sized regional and local players, captives and smaller global players, which compete in their own domains.

Besides these, there are also a sizeable number of small local service providers and niche-focused players, which are facing consolidation pressures.

The report indicated that the European IT services industry has been rapidly consolidating in the last two years. This has led to the emergence of large pan-European majors such as CapGemini and LogicaCMG.