NIIT plans to acquire some US software companies - Views on News from Equitymaster

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NIIT plans to acquire some US software companies

Feb 14, 2000

NIIT has plans to acquire some US base software companies in the current year (the company’s year ends in September). Six companies are reported to have been short-listed. NIIT derives 50% of its business from training and the balance from software development. The company has around 114 centres of its own and around 890 centres of franchisees within the country.

The acquisition, if were to come through would boost NIIT’s software revenues, which are expected to grow at a much faster rate than its revenues from the training business. However, the funding of the acquisition is open to question.

Secondly, while most Indian software companies have plans to acquire US based software companies including Infosys, Leading Edge etc. none has so far succeeded in making a noteworthy acquisition.

This could be due to the fact that the good companies, which have a niche or are growing fast are not willing to sell out with the US economy itself doing quite well. Hence even NIIT would need to be cautious about the quality of the business of the potential acquisition as well as not over pay in terms of valuation.

Market View:
Most analysts have rated NIIT as buy primarily due to its impressive growth of revenues from software development. The training business provides the company with a cushion of stable revenues and decent margins.

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