The focus of IT services firm has shifted to building vertical technology capabilities to meet specific requirements
To expand the client base and technology capabilities and also add new talent, Indian information technology (IT) services companies are taking the inorganic route to ramp up business in key verticals.
The focus of IT services firm has shifted to building vertical technology capabilities to meet specific requirements, while traditionally they used to focus on building horizontal technology capabilities like data centre services, application development and managed services. Ramping up niche sector technology capabilities, along with cloud and digital is becoming a key factor of differentiation.
Nitin Bhatt, technology sector leader, EY India said, “Indian tech companies have recognized that domain-specific expertise can significantly enhance their win rates as clients value end-to-end, strategic business transformation partners. Such acquisitions can not only help them better compete with larger global players but can also provide significant synergy opportunities through up-selling and cross-selling”.
DD Mishra, senior director analyst, Gartner said as technology is changing fast, developing vertical-specific technology capabilities in-house over a long period is not an option. “Acquisitions help them leapfrog and get those capabilities immediately as well as give access to the existing client base. But execution is key to ensure the acquisition is successful”, he added.
Last week, a 70 per cent stake in Perigord Asset Holdings Ltd was acquired by Tech Mahindra Ltd to augment its technology capabilities in the global pharmaceutical, healthcare and life science (HLS) sectors. Perigord Asset Holdings Ltd is a specialist in end-to-end packaging supply chain solutions for the life sciences industry.
Brokerage Emkay Research in a note said, “For Tech Mahindra, HLS is a focus vertical (8 to 9 per cent of revenue) and the Perigord acquisition will augment its domain capabilities and also expand its BPaaS (business process-as-a-service) offerings”.
The acquisition is part of Tech Mahindra’s long-term growth plan in key markets such as the US, India, Ireland and Germany. In the December quarter, the IT major had won a large deal from an American healthcare company for digital transformation of its entire application stack.
CP Gurnani, chief executive officer and managing director, Tech Mahindra said, “Mergers and acquisitions are a vital part of our business strategy. Forming meaningful alliances help us in enhancing our service offerings, enabling us to emerge as a partner of choice”.
Wipro Ltd, earlier this month, signed an agreement to acquire management and technology consultancy firm Capco for $1.45 billion to bolster its banking, financial services, and insurance (BFSI) vertical, which grew 1.2 per cent sequentially and contributed 30.5 per cent to its revenue in the December quarter.