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Wipro started as an oil mill 75 years ago. Today it bought a UK consulting firm for $1.45 billion

While analysts and industry watchers concurred that it was a bold move, they also expressed concern because integrating a consulting firm is not easy, simply because the culture and cost structure are completely different.

March 05, 2021 / 08:04 AM IST

Software services provider Wipro's journey began on December 29, 1945, when Muhamed Husain Hasham  Premji registered Western India Vegetable Products Limited after buying an oil mill in Amalner, Maharashtra. 75 years later, his grandson Rishad Premji has stamped his own legacy on the software firm, by announcing the largest acquisition in its history, a move that could potentially catapult Wipro to the global technology consulting sweepstakes.

The Bengaluru-based software major said on March 4, 2021, that it has acquired Capco, a consultancy firm for $1.45 billion. The London-headquartered The Capital Markets Company (Capco) is a management and technology consultancy firm that provides digital, consulting, and technology services to clients in the banking and financial services space, an industry that is the biggest source of revenue for Indian IT companies.

"This is the largest acquisition in our history as Wipro. It will bring $700 million in revenue. With this, Wipro will join a select league of providers who bring end-to-end solutions at scale to our customers. Banking and financial services is a high growth and priority area for us. This will drive accelerated growth. I said a few months ago that you will see a bolder Wipro, a Wipro that will be more risk taking and shake up the apple cart. This acquisition paves the path to build a bold tomorrow," Wipro chairman Rishad Premji told analysts hours after the announcement.

The shaking of the apple cart began in earnest when Wipro chose Thierry Delaporte as CEO last year. A veteran of Capgemini, Delaporte is based in Paris, took charge during the pandemic and is yet to visit the software major's headquarters in Bengaluru.

In the last six months, Delaporte has taken steps to shake off Wipro's status as a laggard, by going after large deals, simplifying the organisational structure and bringing in new leaders. Some of the significant deal wins under Delaporte include Metro AG, which is a billion-dollar deal, and the more recent transformative deal that it won from Telefonica. The go-ahead for a $1.45 billion acquisition is perhaps the biggest sign that Delaporte has earned Premji's trust.

While analysts and industry watchers concurred that it was a bold move, they also expressed concern because integrating a consulting firm is not easy, simply because the culture and cost structure are completely different. Besides, there are questions on whether Wipro really had to make an expensive acquisition when organic demand is anyway robust for the technology sector in the aftermath of the pandemic.

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Delaporte allayed some of these concerns in the analyst call. He said the acquisition will help Wipro grow its banking and financial services business to $3.2 billion from the current $2.5 billion leveraging Capco's strong consulting and business transformation footprint. Banking and financial services companies are the biggest spenders of technology and Wipro wants to get a larger share of the pie here.

Delaporte outlined some key reasons to analysts. "Acquiring will grow financial services from $2.5 billion to $3.2 bilion- scale matters, This will lead to growth acceleration by enhancing access. The acquisition is complementary. We will be able to leverage deep relationships with decision makers. This will bring exceptional talent."

The deal, funded with a mix of cash and debt is expected to close in the quarter ending June, 2021. While the deal will dilute EBIT margins by 2 percent, this is expected to improve due to revenue and cost synergies. The acquisition will give access to 30 new BFSI clients and 5000 of Capco's employees will join Wipro.

One of the key factors that sealed the deal is the long-standing friendship between Thierry Delaporte and Capco CEO Lance Levy, a relationship that could smoothen integration in the near term.

"The world has changed. Consulting was too far away from the technology world. But digital has completely changed that", Delaporte said when asked about offshoring firms' struggle to build consulting practices in the past.

Wipro has also put in place a retention plan for Capco's employees. "We have a very comprehensive retention plan that covers leadership and resources, based on Capco's performance, the growth of BFSI vertical and Wipro's performance," Wipro President & HR Head Saurabh Govil said.
While Wipro has been more acquisitive than its peers in the past, it has often struggled with momentum. It ceded space to one rival after another, and is currently India's fourth largest IT company, after TCS, Infosys and HCL Tech. It remains to be seen if its $1.45 billion acquisition will be the booster shot it needs to rise in the pecking order again.
Chandra R Srikanth is Editor- Tech, Startups, and New Economy
Swathi Moorthy
first published: Mar 4, 2021 10:04 pm

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