Home / Industry / Infotech /  IT companies acquire smaller firms as they shift to deliver digital-led projects
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Indian IT services companies are increasingly acquiring specialized firms to scale up digital capabilities, as the process of building in-house capacity for digital projects can be very long, and delivery can be even more complex, said experts. Acquisitions allow them to get instant access to capabilities, enter newer markets, and have ready talent, they added.

Indian IT companies have been organized and have built their capacities to deliver large projects at low costs. However, digital projects are a different ball game as these have characteristics that are opposite of large projects. Such projects are smaller and complex and require high-paid experts to deliver. While margins as a percentage of revenue may be higher, digital projects are typically much smaller, yielding much lower absolute margins, said experts.

According to Abhisek Mukherjee, co-founder and director of management consultancy firm Auctus Advisors, given this inherent dichotomy, attempts to build some pockets of digital capabilities in-house leads to two challenges. “One, given the smaller size of the projects, revenue leaders do not focus on these adequately. Two, and more importantly, expensive talent leads to culture clashes with the larger organization."

“The smart workaround is to acquire digital-native firms and run them relatively independently. The firms can then deliver the smaller, but highly profitable and influential, digital projects and the organization can step in downstream. After multiple false starts to build the capabilities in-house, larger players seem to have homed in on this acquisition-led strategy," he added.

For instance, in 2022, Infosys Ltd acquired two companies—German digital marketing agency oddity and Australia’s Carter Digital—to grow its design and experience capabilities. The companies will be part of Wongdoody, which was acquired by Infosys in 2018, and will join its network of studios across Seattle, Providence, Los Angeles, Houston, New York and London, and the design hubs across five cities in India.

Infosys Consulting’s acquisition of Singapore telecom major Singtel’s delivery centre in Malaysia in 2021 helped the company expand its footprint in Southeast Asia to service international clients.

In April, Wipro Ltd said it will acquire Rizing Intermediate Holdings Inc., a global SAP consulting firm, for $540 million, to bolster its SAP cloud practice and help clients transform businesses into intelligent enterprises. As one of the leading strategic partners in the world for SAP, Rizing is expected to be a critical extension of Wipro’s SAP cloud practice and Wipro FullStride cloud services. The company expects the combined offering to help expand its leadership across oil and gas, utilities, manufacturing and consumer industries.

Rizing is the latest in a series of acquisitions, underscoring Wipro’s ambitious growth agenda under chief executive Thierry Delaporte. The recent acquisition of LeanSwift Solutions, a US-based system integrator of Infor Products, is also aimed at complementing its cloud capabilities, especially in the manufacturing and distribution sectors.

Wipro has also acquired Convergence Acceleration Solutions (CAS Group) for $80 million to expand its consulting capabilities for communications service providers. In a bid to strengthen its play in the cybersecurity space, it also acquired Texas-based Edgile for $230 million in December.

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