Aiming at higher growth amid slowdown: Mid-tier IT cos bet big on acquisitions

Bengaluru: After large IT services firms, mid-tier IT companies in India are going aggressive in acquiring engineering services entities to boost their revenue amid a slowing demand environment.

This month, mid-tier IT firm Coforge has announced that it would acquire 54 per cent stake in Cigniti Technologies at Rs 1,415 per share. Cigniti has a sound digital engineering practice with multiple offerings that is likely to boost the engineering services offerings of Coforge post its acquisitions.

Similarly, Happiest Minds Technologies has acquired entities like PureSoftware Technologies and Aureus Tech Systems in recent quarters. Both these companies have significant engineering services components, which is likely to boost the service offerings of Happiest Minds.

Experts are of the opinion that mid-tier firms are also building capabilities in the ER&D (engineering, and research & development) space given the growth prospects of this segment in coming years.

“Like large firms, now mid-tier firms have started acquiring companies to build capabilities in the engineering services space. Because, this space remains one of the fastest growing areas within the IT industry,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting told the Bizz Buzz.

Large IT firms including Infosys, HCL Tech, Capgemini and many other global firms have been acquiring ER&D companies in recent quarters.

Last year, HCL Tech acquired 100 per cent stake in the German automotive engineering services company ASAP Group for $279 million (about Rs 2,300 crore). This acquisition is likely to increase HCL Tech’s capabilities in the automotive engineering services sector, notably in e-mobility, autonomous driving, and connectivity. ASAP has many key clients in Germany as it collaborates with leading automotive OEMs and tier-1 suppliers from its Ingolstadt headquarters. This acquisition provides HCL Tech access to ASAP Group’s large client base.

Similarly, Infosys announced last month 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 the acquisition of InSemi, a provider of semiconductor design and embedded services for around Rs 280 crore.

According to experts, the share of outsourcing is likely to increase in the engineering services space in coming years. Of the total annual ER&D spend of $1.8 trillion, only 5 per cent is currently getting outsourced to service providers. Most experts opine that this is likely to grow to about $300 billion in the next three years.

As spend in digital spend comes down, dragging the top line growth; IT firms are building capabilities in those areas wherein client spend is still continuing, they said.