Brief thoughts on Indian technology market


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US Companies Tend To Drive M&A; Hence Good Prospects For India Based Companies

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Brief thoughts on Indian technology market

  1. 1. 1C O N F I D E N T I A L Brief Thoughts on Indian Technology Market MEMBER FINRA, SIPC
  2. 2. 2C O N F I D E N T I A L India is a Large and Rapidly Growing Market 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2010 2011 2012 2013* 2014* 2018* GDP Growth 2010 - 2018* India Growth Rate Advanced Economies Growth Rate GDP Growth 2010 – 2018* • India is currently the world’s 10th largest economy by GDP and 2nd largest by population • By the year 2018, India’s GDP is expected to have increased by ~50% as the country continues to implement pro-growth measures • The IMF estimates that by 2018, India will be tied with the U.K. as the world’s 8th largest economy Source: IMF, World Economic Forum 1. United States 15,684,750 2. China 8,227,037 3. Japan 5,963,969 … 10. India 1,824,832 Current IMF GDP Rankings ($M) • Indian GDP growth rates are expected to significantly outpace GDP growth rates of the “Advanced Economies” • Near-term GDP growth expectations have the Indian economy growing by 5.7% and 6.2% in 2013 and 2014 respectively, with growth reaching 7.0% by 2018 • Structural challenges are India’s biggest inhibitor to growing even more quickly
  3. 3. 3C O N F I D E N T I A L M&A Transaction volumes ’10-’13: US = 7,335 deals, India = 361 deals Data as of 6-14-13Source: IMF, World Economic Forum Liquidity Events Tend to Track with GDP Growth • In 2011 and 2012, technology liquidity events (M&A and IPOs) were down from 2010 highs as the economy grew at a slower rate • Renewed optimistic growth expectations should result in increased M&A and IPO activity over the near term • That said, exits by Indian technology companies have historically not been as successful compared to exits by their US counterparts • For Indian technology companies acquired between 2010 and June 2013, the median EV/LTM Revenue multiple is 1.3x; a comparable analysis done for US based targets yields a multiple of 2.8x • The same analysis was run for Indian and US technology IPOs from 2010 to June 2013; Indian companies trade at a median EV/LTM Revenue multiple of 2.5x while US companies trade at a median multiple of 4.0x 0 20 40 60 80 100 120 140 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2010 2011 2012 2013* 2014* 2018* GDP Growth 2010 - 2018* India Growth Rate No. of Liquidity Events GDP Growth vs. Liquidity Events 2010 – 2018* Target Country 2010 2011 2012 Total ‘10-’13 M&A IPO M&A IPO M&A IPO M&A IPO India 1.9x 2.5x 1.1x - 0.7x 12.8x 1.3x 2.5x US 3.0x 3.1x 2.8x 3.1x 2.4x 6.7x 2.8x 4.0x Median EV/LTM Revenue Multiple 2010 – June 2013
  4. 4. 4C O N F I D E N T I A L Indian Companies Often Trade at a Discount to US Companies • As the graph on the previous page shows, Indian companies that experience a liquidity event typically trade at a 30%-50% discount to their US peers • Although there may be many factors influencing the discounted valuation (e.g. Country-specific macro considerations), additional analysis on what types of companies are experiencing liquidity events shows that a significantly higher percentage of Indian companies are service-focused, while US companies tend towards a product focus • Product companies tend to trade better than service companies due to their ability to scale more quickly and efficiently; they also typically have IP which creates a competitive barrier and enhances value • Between 2010 and June 2013, 42% of Indian technology companies that participated in a liquidity event were service focused as opposed to only 20% of US technology companies Data as of 6-14-13 Source: IMF, World Economic Forum US Exits 2010 – 2013* Indian Exits 2010 – 2013* 19.9% 42.8% 37.4% Service Product Both 42.1% 32.7% 25.2% Service Product Both
  5. 5. 5C O N F I D E N T I A L US Companies Tend To Drive M&A; Hence Good Prospects For India Based Companies • 14 out of the 20 largest technology companies (as measured by market capitalization) are based in the US; 18 of the 20 companies (90%) are product focused, with 14 of the 18 product focused companies headquartered in the US • Over the last 2 years, the largest 20 companies consummated 180 M&A transactions, with 173 (96%) of the transactions being completed by companies with a product orientation • 142 of the 180 (79%) total deals were completed by US based companies Data from 6-14-11 to 6-14-13 Product vs. Service M&A - Largest 20 Companies Product Company M&A - Headquarter Location Product focused companies based in the US account for the majority of M&A transactions completed by the 20 largest tech companies Top 20 Largest Tech Companies (Mkt Cap) 1. Apple (US) 11. Taiwan Semi. (Taiwan) 2. Google (US) 12. SAP (Germany) 3. Microsoft (US) 13. Tencent Holdings (China) 4. IBM (US) 14. Mastercard (US) 5. Oracle (US) 15. eBay (US) 6. Samsung (Korea) 16. Facebook (US) 7. Cisco (US) 17. Accenture (Ireland) 8. Intel (US) 18. EMC (US) 9. Visa (US) 19. Tata Consultancy (India) 10. Qualcomm (US) 20. Hewlett-Packard (US) Service CompaniesProduct Companies 96% 4% Product Service 82% 18% US Based Foreign Based
  6. 6. 6C O N F I D E N T I A L Recent Indian Exits with Disclosed EV Only * Deal is pending Date Target Description Buyer EV EV/Rev 6/14/13* RedBus Online bus ticketing Naspers group ~$100M ~10x 6/13/13 JustChalo Mobile technology OpenTable $11M - 4/24/13 Idhasoft Software application development Prism Informatics $20.1M 1.9x 2/25/13 TutorVista Global Online education services Pearson $25.7M - 2/7/13 Cosmic Circuits Mixed-signal IP cores and ASICs Cadence Design Systems $62.0M - 12/3/2012 NewsWire18 Real time news and data platform Samara Capital $16.4M - 8/16/2012 Computational Research Labs High performance computing solutions and services Tata Consultancy $33.7M - 8/14/12 Infotech Enterprise Geospatial, engineering design, and IT solutions Gagil FDI Limited $36.2M - 8/13/12 Just Dial Limited Indian local search engine IPO $704.8M 15.5x • The recent success of RedBus (M&A) and Just Dial Limited (IPO) could bode well for Indian technology companies exits moving forward • India offers an attractive opportunity for large global technology companies to gain a foothold in an emerging market *: Pending (Announced on June 14, 2013)
  7. 7. 7C O N F I D E N T I A L Bio Gaurav Bhasin – Director Gaurav Bhasin is a Director at Pagemill Partners. Since joining Pagemill, Gaurav has closed over 25 transactions and represented both public and private sellers, buyers and strategic partners in a broad range of technology industries and sectors, including internet, semiconductors, telecommunications/networking and software and services. Additionally, Gaurav has successfully completed complex cross-border transactions in geographical regions worldwide; one of his cross border transactions led ACQ to recognize Pagemill as Financial Advisory Firm of the Year and Cross-Border M&A Advisor of the Year. Previously, Gaurav worked as an investment banker at Banc of America Securities in the Technology, Media and Telecom Group. While there he provided advisory services on IPOs, follow-on offerings, M&A and debt-related transactions in the technology sector representing more than $3B in aggregate value. Gaurav started his career in engineering and moved into management positions at Vitesse. Gaurav holds an MS in engineering from Henry Samueli School of Engineering and Applied Science at UCLA and an MBA from the Anderson School of Management at UCLA where he graduated with Anderson Honors. He is a Licensed Registered Representative (Series 7, 63 and 79) of the National Association of Securities Dealers. He grew up in India and is conversant in Bengali, Hindi, Punjabi and Urdu. Email: Office: (650) 354-4034. Mobile: (650) 644-7749
  8. 8. C O N F I D E N T I A L Pagemill Partners, LLC 2475 Hanover Street Palo Alto, California 94304 United States +1 650-354-4000 Main +1 650-856-0136 Fax