IT cos aggressive on acquisitions
The largest acquisition during the last financial year ended March 2021 was done by Wipro in which it bought UK-based consulting firm Capco for $1.5 billion. This was the biggest buy out by Wipro since its inception
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Most IT acquisitions are aimed at improving digital capabilities apart from geographical growth
Bengaluru: Domestic IT services companies are aggressively tapping the inorganic route in order to push their growth prospects. Realistic valuation during the pandemic period along with search for both geographical and capacity expansions is cited as the key reasons for such high activity in the mergers and acquisition space.
The largest acquisition during the last financial year ended March 2021 was done by Wipro in which it bought UK-based consulting firm Capco for $1.5 billion. This was the biggest buy out by Wipro since its inception.
Capco acquisition will give Wipro access to 30 new large BFSI (banking, financial services, and insurance) clients apart from adding around $700 million additional revenue annually. After Thierry Delaporte took over as the CEO of Wipro last year, the company acquired four companies including Eximius Design, European Salesforce multi-cloud partner 4C, Brazilian firm IVIA Servicos de Informatica in 2020-21.
Wipro's larger peer Infosys also tapped the M&A route in FY21, which was more aggressive than previous fiscal. Infosys acquired Simplus, one of the fastest-growing Salesforce partners in the US and Australia, for around $250 million. This will boost the delivery capabilities in the digital technologies space for the company. Apart from Simplus, it also bought Carter Digital, Blue Acorn iCi, and GuideVision among others during this period.
"Companies are acquiring primarily for four reasons. Domain and digital capabilities along with geographical expansion are the major drivers of tapping the inorganic route. Apart from it as the technology outsourcing market is maturing, scale has a certain advantage. So, large acquisitions or even mergers are also likely to be seen in coming years," Pareekh Jain, a technology outsourcing advisor and founder of Pareekh Consulting said.
While many companies are buying out entities due to realistic valuation of target firms, some are even acquiring some segments of client firms. For instance, market leader Tata Consultancy Services (TCS) bought Postbank Systems AG, the technology services unit of Frankfurt-based Deutsche Bank AG last year. Similarly, Infosys winning its largest ever outsourcing deal worth $3.2 billion from German automotive major Daimler is another such deal. As per these deals, these companies have to rebadge (absorbing client employees on their payrolls) client employees. While TCS will rebadge about 1,500 people from Deutsche Bank AG, Infosys will absorb around 600 people. Experts said that global enterprises are facing severe cost pressure amid the Covid pandemic. Therefore, they are willing to sell units that are non-core to their operations.
Meanwhile, earning season for the Indian IT service companies began on Monday with TCS announcing its results. Most analysts predict that large IT companies will give double-digit growth in revenues for the current financial year on the back of demand uptick.
