Indian information technology (IT) services companies are taking the inorganic route to ramp up business in key verticals to expand their client base and technology capabilities, and also add new talent.
While traditionally IT services firms used to focus on building horizontal capabilities like data centre services, application development and managed services, the focus has now shifted to building vertical capabilities to meet specific requirements. Along with cloud and digital, ramping up niche sector capabilities is becoming a key factor of differentiation.
“Indian tech companies have recognized that domain-specific expertise can significantly enhance their win rates as clients value end-to-end, strategic business transformation partners. Such acquisitions can not only help them better compete with larger global players but can also provide significant synergy opportunities through up-selling and cross-selling,” said Nitin Bhatt, technology sector leader, EY India.
DD Mishra, senior director analyst, Gartner said developing vertical-specific capabilities in-house over a long period is not an option as technology is changing fast. “Acquisitions help them leapfrog and get those capabilities immediately as well as give access to the existing client base. But execution is key to ensure the acquisition is successful,” he added.
Last week, Tech Mahindra Ltd acquired a 70% stake in Perigord Asset Holdings Ltd, a specialist in end-to-end packaging supply chain solutions for the life sciences industry, to augment its capabilities in the global pharmaceutical, healthcare and life science (HLS) sectors.
“For Tech Mahindra, HLS is a focus vertical (8-9% of revenue) and the Perigord acquisition will augment its domain capabilities and also expand its BPaaS (business process-as-a-service) offerings,” brokerage Emkay Research said in a note.
The acquisition is part of Tech Mahindra’s long-term growth plan in key markets such as the US, India, Ireland and Germany. In the December quarter, the IT major had won a large deal from an American healthcare company for digital transformation of its entire application stack.
“Mergers and acquisitions are a vital part of our business strategy. Forming meaningful alliances help us in enhancing our service offerings, enabling us to emerge as a partner of choice,” said CP Gurnani, chief executive officer and managing director, Tech Mahindra.
Earlier this month, Wipro Ltd signed an agreement to acquire management and technology consultancy firm Capco for $1.45 billion to bolster its banking, financial services, and insurance (BFSI) vertical, which grew 1.2% sequentially and contributed 30.5% to its revenue in the December quarter.
As part of the deal, Wipro will get access to 30 marquee clients and over 5,000 consultants. Wipro chief executive Thierry Delaporte maintained that mergers and acquisitions will continue to be a focus area for the company.
Recently, TCS, too, announced two strategic acquisitions—Pramerica Systems Ireland and Postbank Systems AG—to strengthen its play in the BFSI sector, which grew 2% sequentially in Q3.
