By D. BarkerIf you had a couple hundred million to buy a company that would expand the reach and depth of your IT services firm, what company would you buy?
More specifically, if you were Chile-based technology giant Sonda, what would you buy? The largest IT services company in Latin America has not hidden its intentions to become even larger. Company executives have stated this publicly, although not with any details. “We have our foot on the accelerator, focusing on acquisitions that add value to Sonda,” one financial officer said.
DNA is to Get “Bigger”
CEO Andrés Navarro, who founded the company in Santiago way back in 1974, said at the start of the company’s acquisition streak that Sonda has $500 million to spend, and not all of that money has yet been spent. According to Celfin Capital Equity Research, Sonda has about US$158 million left to spend on (Funds don’t seem to be a problem at Sonda, with an estimated US$750 million in capital and stock valuation of about US$2 billion.)
Navarro said in an August interview that “my ambition has always been that Sonda buy something bigger.”
Most recently, Sonda concluded its deal to buy Quintec, a Chilean tech holding company, for US$68.5 million. Navarro has said there will be no further acquisitions in Chile. Growth there will be “organic.”
My bet would be their next acquisition will be a medium-size company in either Colombia, Venezuela, or hot hot Brazil — maybe someone with expertise in a promising market like mobile applications or cloud services
Let’s take a quick look at what else Sonda put in its shopping basket this past year. Prior to Quintec, the most recent completed transaction was Telsinc, a Brazilian company focused on virtualization, security, and communications. Prior to that: Softeam (also Brazil), NextiraOne (Mexico), Kaizen (Brazil), and Celtech (Argentina).
“Sonda has a very impressive budget for acquisitions, very aggressive,” Fernando Belfort, industry analyst with Frost & Sullivan based in Brazil, told me. “Their strategy is composed of acquiring companies in a region and building up regional expertise. That’s what they did with Kaizen, for example, a company with a lot of expertise in virtualization. It’s a very effective and strategic way of increasing not only market share but to start competing in a more effective way with global IT companies like IBM and HP.”
Belfort said there has been lots of speculation about what Sonda might buy. “They have lots of money left, so we might see something very interesting,” he said, “but there aren’t a lot of companies left to acquire right now. It will be interesting to see if they invest in acquisitions or invest more in local infrastructure in each country.”
The acquisitions in Brazil reflect the company’s current emphasis on that nation; that’s where Sonda’s revenues have grown the most in the past year, accounting for nearly 40% of the total, Bloomberg reported. Other acquisitions in the big country are entirely feasible.
Navarro has mentioned interest in Colombian and Venezuelan markets, so IT targets there are also on the shopping list, it appears.
But what about that large IT market to the north? As the U.S. economy continues to shake, would Sonda find itself with a good opportunity to buy a slice or all of a U.S. company? In the past year, we’ve seen several ascendant Latin America-based technology companies buy U.S.-based companies — the two best examples being Stefanini acquiring TechTeam Global and Globant snatching up Nextive.
The obvious question would be: Who’s for sale that would make sense?
As Globant’s Martin Migoya told Nearshore Americas after his firm’s deal with Nextive, “there are not a lot of U.S. technology companies for sale right now that would be a good fit.” Migoya was speaking mainly in terms of company culture, but it’s true that there aren’t a lot of U.S. technology providers on the market right now.
Belfort said he thinks a North American acquisition is not the most likely thing to happen, “but everything is possible.” That said, he added that Sonda “will contiue to fortify its position in Latin America, and globalization of its operations outside of Latin America will be secondary.”
Everest Group‘s Anand Ramesh told me a few months ago he “can’t foresee” Sonda buying a U.S. business but that it “makes sense because, considering their size, it would allow them to jump-start their U.S. presence.”
A Small, Tasty, but Very Pricey Fish
Or, how about this scenario? Someone buying Sonda — “a tasty small fish,” as Navarro once described it — is a possibility too, but not one that many observers think is currently likely. They’d be an attractive way to grow presence in Latin America, but the finances would be a problem. “At their size, it would be a huge and complex acquisition,” a big-ticket deal to the tune of a couple billion dollars, Ramesh says.
Who could spend that kind of money? IBM? Would HP’s new CEO see it as a way to grow that company’s services business? Capgemini? They’re huge, and after all, they’ve dealt with Sonda before, having acquired Sonda Procwork’s BPO facility in Gaspar, Brazil, last August. Not likely, though; taking a 55% stake in Brazilian IT pioneer CPM Braxis has probably settled the big French firm’s appetite for the time being.
Then again, maybe Sonda will decide to keep its hundreds of millions tucked under the mattress until the right deal appears, even if it’s past Navarro’s stated goal of more deals by 2012.
But I’m with Mr Belfort on this one: Sonda’s priority will be strengthening its forces in Latin America. My bet would be their next acquisition will be a medium-size company in either Colombia, Venezuela, or hot hot Brazil — maybe someone with expertise in a promising market like mobile applications or cloud services.
Regardless of any further acquisitions, Sonda’s strategic shopping makes Sonda, as Ramesh put it, “a more viable contender for IT buyers.”