New York/Mumbai: Wipro Ltd is seeking to make more than $1 billion in acquisitions over the next 18 months, adding intellectual property and software to help boost profit, chairman Azim Premji said.
India’s third largest computer-services provider is targeting deals between $50 million and $300 million, though it’s not a hard cap, Premji said in an 18 May interview in New York. The firm relies mostly on an internal mergers and acquisitions team led by Rishad Premji, the chairman’s son, to hunt for candidates, rather than using investment banks.
Scouting for deals: Wipro chairman Azim Premji. By Jagadeesh NV/Mint
“We are trying to create deals, rather than just react to deals which are lying with investment bankers, because we find our win rates are much higher,” said Premji, 66. “We want to supplement our growth rates there and go up the value chain.”
Wipro faces competition in its effort to add higher-margin services business. Larger rivals Tata Consultancy Services Ltd (TCS) and Infosys Ltd have said they want to make acquisitions in Europe and other non-English-speaking regions in their hunt for new markets. Global information technology (IT) services spending growth may slow to 1.3% this year, from 6.5% in 2011, as Europe’s debt struggles continue, research group Gartner Inc. said on 5 April.
Bangalore-based Wipro offers software-development and business process outsourcing services, as well as consulting and product engineering. IT services accounted for 76% of the firm’s business in the year ended March. The firm, which also has units that make hand soap along with consumer products such as light bulbs, generated revenue of Rs 37,500 crore in the 12 months ended March.
Wipro tumbled 7.2%, the most in almost three years, in Mumbai trading on 25 April after its forecast for IT revenue lagged behind some analysts’ estimates. The stock is down 1.9% this year, while TCS has gained 4.3%.
Wipro is looking for specialized firms in analytics, cloud computing and mobile communications, and is focused on industries including health care, financial services, energy and utilities, and retail, Premji said.
“It’s a good time to get a decent price,” he said. “In a slowdown market, people are a little more hesitant to pursue acquisitions.”
“Target companies also are more open to being acquired because they’re realizing this is not a time to take it public, they cannot get the kind of upside they would have expected,” he said. “It’s not that people think next year is going to be bullish, or that next year is going to be great.”
Wipro is open to deals in areas where it’s expanding, such as Saudi Arabia, and in parts of Northern Europe and Asia, he said. It isn’t looking at Japan or southern Europe, or for more acquisitions in Latin America.
The firm also isn’t seeking businesses that are down in the value chain, doing commoditized tasks, after spending more than a year reorienting itself to capture higher-value work, he said. “There are companies available for $1 billion and above in terms of revenue, but they’re available for the wrong reasons.”
Premji, who with his family controls 78% of Wipro, said it would make sense for Rishad to succeed him eventually as non-executive chairman, though he said he has no plans to step down for at least 24 months. The son was promoted to chief strategy officer in September 2010.
The chairman took over the reins?of?his?father’s business after he died of a heart attack in 1966. Azim Premji was 21 years old and had three months left in his engineering programme at Stanford when he returned home to helm the then $2 million business, which he transformed over 40 years from a vegetable oil and soap maker into a software services provider with a market capitalization of $18 billion.
Wipro isn’t the only Indian firm looking for deals while shunning the services of investment banks. Billionaire Ajay Piramal in an interview last month said he may spend $1 billion to acquire biotechnology and defence assets for his health care- to-real estate empire without the help of bankers, who he said don’t add much value.
The attitude underscores the challenge facing global firms such as Goldman Sachs Group Inc. and UBS AG as they try to squeeze revenue from a country where fees are 20% of those in China, according to New York-based researcher Freeman and Co.
David Merritt in London, Netty Ismail in Singapore and Patrick Chu in Tokyo contributed to this story.