Corporate China | Camelot raises buyout offer, de-listing looms

From an industry-specific perspective, these latest developments show that China's software outsourcing sector is sorely in need of consolidation, as most individual players remain too small to compete with global rivals like India's Infosys (Mumbai: INFY) and US giant Accenture (NYSE: ACN). From a bigger perspective, this latest move could indicate that the recent wave of buyouts of US-listed Chinese firms could be starting to wrap up, as many of the weaker players with cloudier prospects have now left the market.

I suspect the offer was raised in response to interest from one or more rival bidders, perhaps including Beyondsoft, reflecting Camelot's low valuation. The company's ADSs once traded as high as $25 (HK$194), valuing Camelot at more than $1 billion (HK$7.75 billion) at its height. But interest in the sector has faded, as companies like Pactera and Camelot failed to achieve the strong growth that many had previously hoped for due to their small size and stiff competition from other global rivals.

Pactera itself is the result of a merger last year between two relatively big players, VanceInfo and HiSoft. But clearly this industry is in need of greater consolidation, which could finally start to occur once Camelot and Pactera are no longer publicly listed. Last week, Pactera announced that a group led by private equity firm Blackstone (NYSE: BX) had lowered its previous buyout offer for the company by seven per cent due to the company's weakening outlook. If that deal moves forward, I would expect to see Blackstone ultimately sell Pactera to another rival, either Chinese or foreign, within the next two years.