2024 seems to be year of M&As for global IT industry

Cognizant’s acquisition of digital engineering firm, Belcan comes at a time when IT firms are desperately looking to accelerate revenue growth in a tight demand environment. On Monday, Nasdaq-listed Cognizant said that it would acquire the US-based digital engineering firm Belcan for $1.29 billion in cash and stock. It is backed by American private equity firm AE Industrial Partners since 2015. The buyout will help Cognizant, whose maximum number of employees are in India, expand its footprint in the aerospace, defense, space and automotive sectors, primarily in North America and the United Kingdom (UK). The acquisition will significantly boost Cognizant’s top line in the coming years. In a statement, the company said revenue of the acquired business is expected to be over $800 million on an annualised basis and has grown at an eight per cent compound annual growth rate (CAGR) over the last two years. Such addition to the top line will help the firm to push growth at a time when the outsourcing industry is growing through a slump after the post-pandemic surge.

Importantly, the acquisition has taken place in the space of engineering services, which remains one of the fastest growing segments within the IT industry. Earlier, its peers showed aggression in the M&A space to draw more revenue through inorganic route. In April, Infosys announced that it would acquire in-tech, an engineering R&D services provider focused on the German automotive industry for around $480 million. In January, the Bengaluru-headquartered company announced acquisition of InSemi, a provider of semiconductor design and embedded services for around Rs. 280 crore. Last year, HCL Tech acquired German automotive engineering services company, ASAP Group for $279 million. Not only large firms, even mid-tier IT services companies are tapping the acquisition route. For instance, ITC Infotech announced acquisition of cloud services firm, Blazeclan for Rs. 485 crore. Similarly, Happiest Minds is to acquire PureSoftware Technologies for Rs. 779 crore. These high-value acquisitions indicate that IT services companies are searching for routes that can immediately add to their top lines. A most important factor towards this is that demand for discretionary spend remains low.

And this is not likely to revive in the current calendar year state many analysts. In a report, brokerage firm Emkay Global recently said that any meaningful recovery of the IT industry will happen in 2025 or FY26. This is because interest rates in most developed economies remain high. However, there seems to be some changes in the stance of central banks in recent days. For instance, Bank of Canada and European Central Bank have cut interest rates by 25 basis points last week. This raise hopes that the US Federal Reserve may also reduce interest rates in the coming quarters. Though job data from the US economy remains strong, the market is expecting some kind of cuts in coming months. Till that happens, IT industry will continue to search for avenues that will result in immediate revenue boost.