The country’s third largest IT services exporter Wipro on Wednesday said it would acquire the US-based Viteos Group for $130 million (nearly Rs 861 crore), a move that will help it strengthen its position in the capital markets outsourcing space. Given Viteos’ revenues of $26.5 million in FY15, the valuation of five times sales, analysts say, hasn’t come cheap.
The purchase is in line with the company’s “string of pearls” acquisition strategy and the second this month. On December 2, the IT major had announced the buyout of Cellent of Germany for $77 million. Viteos will allow Wipro to foray into the banking and financial services industry, where it has traditionally lagged its competitors like Tata Consultancy Services, US-based Cognizant Technology Solutions and Infosys.
While the 2007 acquisition of Infocrossing, a US-based data centre company, cost Wipro some $600 million, the IT major has typically made smaller buyouts with a value between $75 million and $250 million. It first took the plunge with the acquisition of the Raman Roy-founded BPO firm Spectramind for $93 million in 2002. Where Infosys has tended to shy away from acquisitions, Wipro has been more acquisitive, attempting to fill the gaps in its technology offerings; the firm believes it is easier to integrate smaller firms with it.
Pradeep Mukherji, president and managing partner, Avasant, a technology consulting firm, said M&As by Indian technology companies are aimed at addressing the opportunity in the area of digital transformation. “The outsourcing model is changing and becoming more non-linear so companies must adapt to the trend,” Mukherji added.
While questions have been raised about the price at which acquisitions have been made — Spectramind was bought at a cost of 10 times sales, while the Infocrossing was valued at three times the top line — that has not deterred Wipro from continuing with purchases.
New Jersey-based Viteos, with over 400 employees, provides specialised technology services to the alternative investment management industry in the financial services sector. Its technology offering is in a segment called business process as a service or BPaaS. Commenting on the acquisition, Shaji Farooq, president and chief executive, finance solutions, Wipro, said, “The IT services industry is moving to an ‘as-a-service’ model, and the future of business process service (BPS) is going to be BPaaS. Our strategy is to invest in industry vertical platforms which will provide platform-based services to our clients in transaction/outcome-based pricing models. Viteos will further our strategy in the capital markets domain.”
The M&A strategy of Wipro is being headed by Rishad Premji, son of chairman Azim Premji, who is now on the board. Rishad Premji has been instrumental in certain acquisitions by the company and also implementing the strategy of investing in start-up companies through its $100-million fund.
As Wipro extends its reach of acquisitions by going into geographies such as Denmark, Germany, Switzerland and Belgium, it has also adopted a greater flexibility in merging the different cultures. A Wipro executive said there is a conscious effort to allow the existing culture of an acquired company to thrive within their set-up to gain greater synergies. The acquisition will be completed in the quarter ending March 31, 2016, the company said.