For coders, door to Europe opens through Germany

A strong economy will attract investments, no matter what. Or so it appears from the late surge of interest in Germany, the strongest economy in the euro zone, among Indian IT companies.

On Wednesday, mid-tier Geometric acquired Germany-based 3Cap Technologies GmbH, a specialist in automotive embedded systems, for Rs79 crore.

According to Geometric’s management, the acquisition was in line with the company’s stated objective of strengthening revenues from Europe, apart from the automotive vertical.
Barely a week ago, Cognizant had acquired six companies of the C1 Group, an independent consulting and IT services firm based in Germany, with expected annual revenues of
$100 million.

While these two deals may not be enough to suggest Germany is opening up as an IT hotspot, it is definitely a good geography to invest in today, say analysts.

“Germany was always known to be a closed economy, open to outsourcing, but not offshoring. But with more closed economies slowly opening up to offshoring, given the economic scenario, companies are keen to invest in this market and hire local people to run the business there,” said Ankita Somani, analyst, Angel Broking.

IT firms, it has long been believed, are turning their sights on Europe as the US market is near the saturation point for outsourcing and offshoring. With no clarity on the impact of the fiscal cliff on IT and flat client budgets expected in 2013, it is likely that certain economies in Europe are looking more favourable as a means of getting quicker, sure-fire returns.

“Germany is the only market which is growing in Europe. However, the acquisitions are more on a niche level – not large acquisitions. This means Germany is basically a gateway to getting a stronger foothold of presence in Europe for IT firms,” said Rikesh Parikh, vice-president, equities, Motilal Oswal Securities.

Dipen Shah, head of fundamental research at Kotak Securities, concurred.

“Germany and France have been relatively stronger markets for the last 3-4 quarters, and in the normal course of business, it makes sense to make acquisitions in these geographies in Europe.