Information Technology firms are on an acquisition spree amid the pandemic. Indian IT firms have already acquired four companies between April and September and have expressed intent to acquire in the coming quarters.
Infosys and Wipro have acquired two firms each and HCL Tech in May 2020 announced intent to acquire Cisco’s SON Technology. Just for comparison, most of these firms acquired one firm or two in the whole 2019.
Global IT firms, Cognizant and Accenture - who have significant presence in India - have made 15 acquisitions in the meantime.
Going by the leadership commentary, these acquisitions are likely to continue as they look to build capabilities, across technology, geography and industry, to cater to the growing demand.
Pandemic has changed the way IT firms do business. Operations are no longer just about traditional maintenance and support of vast legacy systems. As COVID-19 stuck, for most customers the only way to ensure business continuity is to digitally transform themselves and fast.
With demand landscape changed, IT firms have only one option. That is to pivot either by acquiring the capability or build it themselves.
In an earlier conversation with Moneycontrol, Lingraju Sawkar, General Manager - global technology services, IBM India, said that given the pace at which solutions are being adopted, building the capability themselves might not be the best option right now.
So that leaves acquisitions and partnerships as the best bet for IT companies to quickly pivot to the emerging technology landscape that is in demand right now. That is what the recent acquisitions reflect.
A quick look at acquisitions
Majority of these acquisitions are in the area of cloud, cybersecurity and firms that offer sector specific offerings in growing industries such as healthcare or telecommunication.
Wipro and Infosys have acquired partners of Software-as-a-service (SaaS) firms like ServiceNow and Salesforce that offer cloud-based services and hence are in huge demand.
In July, Wipro acquired Salesforce partner 4C and Infosys recently acquired ServiceNow partner GuideVision to tap this growing demand. GuideVision and 4C offer consulting and implementation of these platforms for enterprise customers and hence an attractive proposition for IT firms.
ServiceNow and Salesforce offer workflow management and customer relationship management services on cloud respectively and have seen their growth surge amid the pandemic.
A report by Kotak Institutional Equities has pointed out that SaaS companies have seen their demand accelerate as enterprises are fast tracking their digital transformation journey. This in turn has resulted in growth surge for these companies.
For the quarter ending June, ServiceNow registered 30 percent year-on-year growth to $1.01 billion. If you look at Salesforce, its revenue jumped 29 percent to $5.15 billion for the quarter ending June 2020. Marc Benioff, CEO of Salesforce, said in an earnings statement that it was one of the best quarters in the history of Salesforce at the back of a crisis.
In comparison, IT industry's growth declined on a year-on-year basis for the June quarter.
Also, while IT firms are well-versed in legacy system integration (SI), SI in cloud requires newer different capabilities. It is these capabilities that the newly acquired firms offer.
Peter Bendor-Samuel, CEO, Everest Group, an IT consultancy firm, said, “As more and more of IT budgets move to SaaS, the importance of services focused on these critical platforms increases. GuideVision and 4C are great examples of boutique firms focused on SaaS platforms.”
Other areas include cloud services and cybersecurity. Most of Cognizant’s acquisitions are in the cloud services space, which is a key focus area for the company. The company has acquired companies that offer Microsoft cloud services like 10th Magnitude and New Signature. Accenture’s is a mixture of cloud, SaaS, cybersecurity and engineering capabilities.
Geography and industry focus
Technology capabilities apart, acquisitions also help companies expand in a certain region or industry.
Salil Parekh, CEO, Infosys, said during the company’s annual general meeting that Infosys is looking at strategic acquisition that will help the company expand in regions like Europe or technology capabilities like cloud and big data analytics.
Recent acquisition GuideVision is headquartered in Prague, Czech Republic with presence in Hungary, Poland, Finland and Germany. Wipro's 4C is based in Belgium with presence in UK, Europe and West Asia.
This is important as revenues from Europe for IT firms are growing even amid the pandemic with technology spend increasing in the region.
Another aspect in industry capability. Healthcare and telecommunications sectors are seeing growth and companies are looking at acquisition that would help them expand their offering.
One such acquisition is Infosys’ Kaleidoscope Innovation. The firm does product design and development in the medical equipment space, an area where Infosys can expand their capabilities in.
HCL Tech in a statement in May said that its intent to acquire Cisco’s Self-Optimizing Network (SON) technology, which includes products and services, that will help the company cater to the growing demand in the telecommunication sector.