PUNE: Mergers
and acquisitions are at an all-time high in the IT services sector in India, be
it a large firms like HCL Technologies or mid-cap players. Industry experts
think this is the way forward for the sector.
With the world shifting to digital, IT outsourcing firms are
in greater need of talent and capability to cater to the demand for latest
capabilities such as artificial intelligence and machine learning. According to
experts, M&A now is a good strategy, despite the risks.
Among the recent buys are HCL's acquisition of IBM products
for $1.8 billion, and Zensar buying Cynosure for 33 million. Stevan Hall,
President, Information Services Group (ISG) – Europe, Middle East, Africa, said
last year saw highest acquisition of digital agencies by the IT firms last
year. "Acquisition pipeline is incredibly healthy," Hall said.
However, Hall agreed that margins could be thin as companies
are investing heavily in the space, which also has a long gestation period. The
margins could be better if a company has a non-linear revenue model such as
revenue-based on outcome-based work, the margins could suffer, he added.
Akhilesh Tuteja, Global Cyber Security practice Co-leader and
heads the IT Advisory practice for KPMG in India and the Europe Middle East and
Africa (EMA), said: "Time is over when companies can do everything on
their own." According to him, at a time when the landscape is changing so
fast it is impossible for companies to build everything on their own at a short
time. So acquisitions are a logical way to go about despite the risks.
Since 2015, IT firms have been on an acquisition spree in
terms of number and value of acquisitions. Bengaluru-based Mindtree acquired
four companies between 2015 and 2016 to the tune of $141 million as opposed to
seven companies it acquired between 2004 and 2010 under $50 million.
Pune-based Persistent Systems has done four acquisitions since
2015, latest one being Herald Technologies for $5.2 million. Zensar
Technologies has made four high profile acquisitions since 2015. The latest one
includes the US-based Cynosure for $33 million.
Pointing out the increase in the acquisition pipeline, Atul
Nishar, founder and chairman, Hexaware Technologies, said that the biggest
investment is happening in digital technologies as the companies want to reach
out to the customers faster.
"Artificial intelligence, block chain and data analytics
are driving the growth at the moment. If you take mid-cap players many of them
are building capabilities in-house. These players are going for M&A for
filling the gap or to take a competence to a much higher level. For, it takes a
long time to build a platform or product," he said.
Arvind Thakur of NIIT Technologies said in a recent interaction with Moneycontrol that acquisitions are the key pillar of growth for the company and it will always keep an eye out for that. The company itself made two acquisitions since 2015 – Incessant Technologies and RuleTek. As the company expands its digital offerings, they are looking to acquire companies that can offer digital capabilities.
0 comments:
Post a Comment