Topics In Demand
Notification
New

No notification found.

Blog
Indian IT Services Reimaging Growth in the New Normal #3: Shopping Spree gathers momentum for Indian IT Services fueling expansion in the #newnormal

October 21, 2020

877

0

Indian IT Services Reimaging Growth in the New Normal

A blog series by NASSCOM Research to highlight trends that are driving the growth for Indian IT services in the new normal

#3: Shopping Spree gathers momentum for Indian IT Services fueling expansion in the #newnormal

The Global M&A Trend, gathering steam with Indian IT companies

In my previous blog “Mergers and Acquisitions – A key growth strategy for technology companies during the Covid times July 2020” I wrote about how global technology companies which were sitting on huge cash reserves had started to leverage acquisitions taking advantage of the fall in valuations during the pandemic.

This trend started for Indian IT companies in July 2020 with Wipro and LTTS which announced acquisition of IVIA Serviços de Informática (Brazil) and Orchestra Technology (USA), respectively. And post that there has been many more acquisition announcements.

Indian IT Services’ M&A Story driven by New Focus Areas    

Though, the larger Indian IT companies have been more in favor of organic growth, they have been making some strategic acquisitions every year, and this year that run rate seems to be inching higher.

Also, something that is making acquisitions this year different is the focus on newer areas and geographies.

Last year, acquisitions strategy focused heavily on building new capabilities in niche areas of digital, design and IP portfolio. And market expansion focus was mainly towards the US and the UK.

Key Acquisitions by Indian IT Services Companies – 2019

Source: NASSOM’s Technology Sector in India 2020, TECHADE, THE NEW DECADE, STRATEGIC REVIEW

 

So how has the story changes so far in 2020? Why this shift towards Inorganic growth? And what are these new focus areas?

 

The shift towards Inorganic Growth

What most Indian IT companies are witnessing post the pandemic is an increasing deal pipeline which is primarily driven by digital transformation deals.

  • TCS reported a deal pipeline of US$6.9 billion in 1QFY21 which has increased to US$8.6 billion in 2QFY21, an increase of 24%.
  • Infosys reported large deal wins worth US$1.74 billion last quarter which increased nearly 2X to US$3.15 billion this quarter.
  • Wipro did not release any numbers but did mention that it also witnessed an improvement in deal wins.

An analysis of these deals from 1QFY21 showed that majority of these were in the areas of cloud, workplace and collaboration tools, customer experience, cyber security and automation which were emerging as the new spending themes for enterprise clients. (Read more details: “#Technologynews – The 4 Cs driving the client spending for Indian IT Services”. And this focus doesn’t seem to be changing as we see company releasing their deal details for this quarter.

So what this means is that to meet the capability demand for these new focus areas – the best way is to acquire niche companies that are experts in these domains.

 

The shift towards newer domain areas, verticals and geographies

If we look at the acquisitions that the companies have done so far in 2020, the focus on new digital areas is clear; another thing that is coming to the fore is that in addition the core markets i.e. the US and the UK, Indian IT Services Companies are expanding their footprint in newer geographies such as South America, Australia and European Markets.

Cloud and Customer Experience and are the leading focus areas for acquisitions

 (Indicative)

Infosys
Simplus

($250 million)

Utah, USA Salesforce consulting company with offices across the US and Australia

Agile Digital and cloud-first digital transformation

Kaleidoscope Innovation

($42 million)

Ohio, USAProduct design and engineering, UI/UX design, CX 

Medical devices, Consumer and Industrial markets

Guide Vision

(€30 million)

Prague, Czech RepublicServiceNow capabilities for its clients in Europe

Cloud-powered enterprise transformation

Blue Acorn iCi

($125 million)

South Carolina, USAAdobe Platinum Partner in the US

CX, digital commerce, analytics, and experience-driven commerce services

Wipro
4C

(€68 million)

Mechelen, BelgiumSalesforce Platinum Partner in EMEA

Sales & marketing automation, CRM and business analytics

IVIA Serviços de Informática Ltda

($22.4 million)

Northeast, Brazil

 

System development, maintenance, consulting and project management services in Brazil

Financial Services, Transportation, Retail, Healthcare, Consumer Goods and Manufacturing

Rational InteractionWashington, USAA full-service digital customer experience (DCX) company

Strengthen digital marketing products suite

Eximius DesignCalifornia, USASemiconductor Software and Systems Design

Services for building smarter, smaller and faster-connected products for various use cases of IoT, Industry 4.0, edge computing, cloud, 5G and AI

Cyient  
IG Partners

(AU$14.8 million)

AustraliaEnterprise Asset Management Solution and Mining 4.0 solutions for the Energy and Mining Industry
HCL Technologies
Cisco’s SON tech

($49 million)

Global5G tech deployment in telecom industry
DWS Limited

(AU$167.9 million)

AustraliaIT, business and management consulting in Australia and New Zealand

Digital Transformation

Tech M
Zen3 Infosolutions

 

Washington, USAIT and software services solution with expertise in Software Product Engineering, DevOps testing, Machine learning and AI & Analytics

AI enablement services to bolster its enterprise application practice

Cerium SystemsBangalore,

India

Semiconductor design and testing, embedded software development and product engineering
Larsen & Toubro Technology
Orchestra Technology

(US$25 million)

Texas, USATelecom OEM – open network forums ONF and TIP across key elements of 5G like ORAN, private networks, narrow band IOT
Persistent
CAPIOTCalifornia, USAEnterprise integration with valuable expertise in MuleSoft, Red Hat, and TIBCO (Cloud)

Operations in USA, Australia, India and Singapore

Company Releases; NASSCOM Analysis

Additionally, deeper vertical focus is emerging towards Healthcare, Medical Devices and Telecom (5G).

The ever growing importance of cloud as an key business area is also reflected in the recent decision of IBM to spin off its $19 billion managed infrastructure services into a separate unit in order to enhance the business focus on cloud computing and AI which are creating immense growth opportunity in the new normal as businesses across industries are migrating to cloud and focusing on Automation for efficiency and cost saving.

The Road Ahead

In my view, this shopping spree by the Indian IT companies will continue.

  • The top three Indian IT companies have a cash reserve of ~US$13 billion as of 2QFY21, making more such acquisitions a distinct possibility in the coming quarters, as valuations still remain attractive.
    • US will continue to see acquisitions as it helps Indian IT companies to add local workforce to the table, amidst the increased visa challenges. Newer markets particularly in Eastern Europe and APAC will also drive increased interest from Indian Tech leaders
    • Digital capabilities such as cloud, customer experience (data analytics), IoT, Cybersecurity, automation and AI will be at the forefront as enterprises accelerate their digital transformation journey.
    • Focus on gaining vertical specific capabilities is particularly in the areas of Medical Devices and Telecom, which are witnessing digital transformation especially in the newnormal.
    • In addition as I highlighted in my last blog captive technology centers of global companies will also garner interest.

 

 

 


That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.


images
Neha Jain
Senior Analyst

Neha Jain

© Copyright nasscom. All Rights Reserved.