In the arena of Mergers & Acquisitions there are two major considerations from the acquiring company’s viewpoint – fundamentals of the company being acquired and price of acquisition – where price is just an externality. The acquisition of overvalued companies is justifiable by reasons which are more strategic than financial in nature.
The good times for ITES valuation may be coming to an end. During the period 2000-01 the ITES sector has been enjoying high post-investment valuations. The post-investment valuation of some ITES companies like Spectramind, Daksh eServices and CustomerAsset have been to the tune of over two times the revenues.
Wipro had invested $10 million for a 24 percent stake in Spectramind while its revenue was around $20 million. Similarly ICICI bought over CustomerAsset for $19.5 million, twice the revenues of CustomerAsset. But, with increasing competition in this sector valuations would dip as compared to the initial stages. Amul Gogna, form
"Price is what you pay. Value is what you get"