Global macro headwinds and muted revenue growth notwithstanding, information technology firms are on an acquisition spree. Deals by private equity funds are also witnessing a surge.
Last week, private equity fund Carlyle said it will acquire a minority stake in engineering service company Quest Global, replacing Bain Capital and Advent, who will exit the company.
Midcap IT firm Happiest Minds which did one acquisition this year, said that it is in discussion with 2-3 companies to acquire more. Last week, Xoriant acquired Thoucentric, a Bengaluru-headquartered specialised consulting firm along with its 450 employees. Xoriant was acquired by PE firm ChrysCapital in January this year.
Amongst large cap companies, Infosys and HCLTech have acquired part of their clients’ operations this quarter. While Infosys acquired Danske Bank’s IT centre in India, where more than 1,400 professionals are employed, last week HCLTech said that “a select group of Verizon Business Global Customer Operations staff will transition to HCLTech”, as part of the $2.1 billion deal with Verizon.
As per a prediction of UnearthInsight, Indian mid size tech services firms will lead the M&A and consolidation race in FY24, that will see over $2 billion spend across 25 to 35 SME acquisitions.
Pareekh Jain, founder of Pareekh Consulting, said, “When the market is down, valuations becomes realistic. Acquisitions during such times open new windows for companies to augment their capabilities in new industry and services lines. It also helps companies to grow in weaker geographies”.
Jain added that three IT companies — Xoriant, R Systems and Encora — got investment from PE firms recently. These companies also saw change in their leadership with outsiders becoming their CEOs. “The acquisitions these companies made recently are reflections of their new line of thinking”.
The other companies that have made acquisitions this calendar year are Happiest Minds, Mphasis, Sonata, and LTTS. Even Coforge is actively scouting to acquire a company in the field of data analytics and cloud.
Sukamal Banerjee, CEO and MD, Xoriant, said, “Especially when the market is down, it definitely creates opportunities for us to drive acquisitions in competency and capability areas, which are at the core of our focus. My assumption is that even other organisations probably are seeing these times as an opportunity to do the same”.
Banerjee added that while it is not true for his company, but generally when organic growth is slowing down, many would be leveraging inorganic route to boost their growth.
Gaurav Vasu, founder, UnearthInsight, said that there are three primary drivers for consolidation among SME tech – slow down in tech spending, vendor consolidation by clients and reduction in listing of tech services firms.