Mid-size IT services providers are expected to step up mergers and acquisitions this year, as these cash-rich firms chase higher growth on the back of a robust 2020-21 financial year, led by increased client spends on digital transformation initiatives amid the Covid-19 pandemic.
The mid-tier companies are looking to gain specific skills or geographic presence through acquisitions.
Pune-based Persistent Systems is looking for potential targets in the $10-$50 million range, said chief executive Sandeep Kalra.
“We are looking at adding capabilities from an M&A perspective and go deeper in the areas of cloud, data, security or Salesforce, or into geographies like Europe,” Kalra said.
The company had cash reserves of $268 million at the end of March.
Similarly, Zensar, which last acquired digital agency Indigo Slate in 2018, is looking at tuck-in acquisitions under its new CEO.
“We have a good track record for making strategic acquisitions to enhance our competitiveness and to continue adding value to our customers. In the coming months, we will be evaluating strategic tuck-in acquisitions in areas such as data, cloud, engineering and others, in line with our recently declared business growth strategy,” said Ajay Bhutoria, chief executive and managing director of Zensar.
Industry experts said with even with large dividend payouts, these companies continue to sit on considerable cash on their books.
KPIT, which provides IT services to the automobile industry, said it had put in place a new dividend policy to maximise returns to shareholders and had decided to pursue strategic acquisitions in the year ahead.
“The acquisitions will not be big, but niche technology ones in the range of $20 million to accelerate our strategy,” said chief executive Kishor Patil.
Most of these companies have been growing well and have a significant geographic presence, said Aniket Pande, lead analyst – IT & Telecom, Prabhudas Lilladher.
“Acquisitions are a good way for the companies to gain better prospects and capabilities and also a new set of customers,” he said, adding that companies are expected to go after areas like customer experience where they see increased demand from clients.
Last month, Coforge announced the acquisition of business process management firm SLK Global.
“If we were to look at spaces where we’d be open to acquisitions, it would be in the areas of data, Cloud and security,” said Sudhir Singh, CEO of Coforge.
The SLK deal was three-four times larger than companies it had acquired in the past, and going forward, the intent is to look at similar transactions.
“It’s more about the fit – if we get the right entity. The appetite has already been demonstrated, so the key was three to four times what we were looking at,” Singh said.
Similarly, Hexaware, which had acquired Mobiquity in 2019, is considering another large acquisition.
“It would have to be something that gives us a new capability. The ideal candidate would give us capabilities in multiple areas. Rather than doing smaller acquisitions, we will do decent-sized ones, once in a few years,” said chief executive R Srikrishna.
