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M&A – The Way Forward for Indian Technology Companies?
M&A – The Way Forward for Indian Technology Companies?

June 22, 2022

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Last month saw a big merger for the Indian Technology industry with LTI and Mindtree now coming together as LTIMindtree. The merger is expected to be completed by December 2022 and would result in a scaled-up IT services provider exceeding $3.5 Bn.

This mega-deal marks the start of the M&A story for FY23, which witnessed a strong run in FY22 which was a record year for acquisitions across technology firms; with cloud, digital engineering, customer experience, cybersecurity, and big data & analytics being the Major investment themes.

 

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                         Source: NASSCOM Strategic Review

 

The last couple of years has witnessed Indian technology companies moving out of their conservative mindset to focus on growth through the inorganic route. As a result, the industry has witnessed significant growth in acquisitions with FY22 being a record year.

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Source: The Economic Times

Considering these record number of acquisitions, the trend is expected to continue this year as well, with most industry analysts expecting the same, considering the cash-rich status of the industry. Cloud, Cyber Security, Industry 4.0, Edge Computing technologies; BFSI, Manufacturing, and ESG are the major segments companies are exploring for acquisitions.

However, the numbers might not be at the same level as last fiscal, considering some companies need to do a lot of work on the integration front.

  • According to Jatin Dalal, CFO, Wipro, “We believe acquisitions are necessary to plug the gaps in capabilities and expand into newer areas, but large acquisitions or too many acquisitions can drain margin profile, drag RoIC (Return on Invested Capital) and dilute earnings.
  • Recently at a Media Conference, Roshni Nadar, Chairperson, HCL Technologies commented - "...Tuck-in acquisitions, specialized acquisitions, which give us certain domain expertise and a certain strength in different business lines is something that we will do, but the focus has been organic growth.
  • After spending over USD 955 million over the last 18 months on acquisitions - Jagdish Mitra, Chief Strategy Officer, Tech M commented on acquisitions in a May 2022 press article “The focus will be on putting in place the systems to capitalize on the synergies and look at how the acquired company can help create a larger portfolio” highlighting that the company will primarily focus on the integration of the acquired businesses. This is clearly reflected in the two acquisitions Quest and Confinale AG that the company made last month.

Overall, the growth story of the Indian IT Industry is expected to be driven by acquisitions to an extent in FY23 as well; whether that will be the key driver of the double-digit growth expectations for this year is yet to be seen.

Continue to follow NASSCOM Insights to know more about what is happening in the industry and keep abreast of all the latest happenings every month in our tech bulletin Techbytes!!

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Neha Jain
Senior Analyst

Neha Jain

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