HiSoft-VanceInfo: A Sleeping Giant 文思携手海辉：IT外包服务的明日之星
I’ll finish this Friday by taking a look ahead to next week, which should see the creation of a Chinese IT outsourcing leader when shareholders are likely to approve the combination of HiSoft (Nasdaq: HSFT) and VanceInfo (NYSE: VIT), the nation’s top 2 listed firms. I hesitate to use the word “giant” to describe this newly merged leader, as it will still be relatively small with a modest $670 million in annual revenue and a market capitalization of just under $700 million. By comparison, Indian IT outsourcing giant Infosys (Mumbai: INFY) expects to earn over $7 billion in revenue for its current fiscal year, meaning the new HiSoft-VanceInfo will be less than a tenth as big.
Investors are also clearly a bit skeptical about this deal, with HiSoft and VanceInfo shares down around 13 and 23 percent, respectively, since the merger was first announced in early August. (previous post) Shareholders of both companies will meet on November 6, or next Tuesday, to vote on the deal, and I’m fairly certain that both sides will approve.
Meantime, both companies seemed to sense waning investor enthusiasm, prompting them to put out simultaneous announcements earlier this week reaffirming their third-quarter and full-year guidance. (HiSoft announcement; VanceInfo announcement) That guidance translates to about 10 percent revenue growth this year for VanceInfo and 14 percent for HiSoft this year — relatively strong figures considering the global economic environment. By comparison, Infosys is expecting revenue to be flat to up slightly this year.
So, what’s the prognosis for this merger and China’s IT outsourcing industry as a whole? I’ll admit I’m a big more optimistic and can’t completely understand all the recent investor skepticism. The new company will be a clear leader in China’s IT outsourcing space and can thus count on strong policy support by Beijing, which wants to build this kind of high-tech, value added service company. What’s more, the combined company’s leadership team is also relatively global compared to other Chinese start-ups, meaning it’s more likely to make decisions based on commercial factors rather than on issues like pride that one often sees at many other Chinese tech firms.
The company will also be in the enviable position of being based in China, allowing it to draw on both the local and global markets for new business. That’s important because many domestic firms, especially big state-owned enterprises, are likely to choose a local IT services provider over a global one due to cultural considerations and also to please Beijing. Lastly, I would expect this new combined company to become a consolidator for the highly fragmented IT services industry, where many smaller players may be finding it hard to survive and prefer to join a larger firm with more cash and better resources.
The only big downsides to this merger could lie in integration issues, which are always a potential problem with a marriage of this scale. Other competitors could also emerge, which we saw when another domestic player called BeyondSoft (Shenzhen: 002649) announced its own mid-sized acquisition just weeks after the HiSoft-VanceInfo deal. (previous post) Still, I would say these risks are relatively minor. Accordingly, the new company should be well positioned to emerge as both a leader and consolidator in China’s IT services space, and could even challenge some of the big global names in the next 5-10 years.
Bottom line: The likely merger of HiSoft and VanceInfo next week will create a Chinese IT services leader that could challenge some of its big global rivals in the next 5-10 years.
Related postings 相关文章:
