AI, transformation-led deals likely to fuel IT M&As: Experts
As the
technology services industry
navigates another year of business drought, AI, engineering and
transformation-led projects
are likely to fuel the appetite for acquisitions, experts say.
Since the beginning of 2024, Infosys—India's second largest IT major— has made four acquisitions in engineering R&D and semiconductor design services space, including two announced in April in cybersecurity and energy consulting areas.
Its smaller rivals HCLTech and
Wipro
acquired two firms each while
LTIMindtree
purchased Voicing.AI in December. These came after a lull of almost no acquisitions in 2023.
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'We expect more and more small AI specialists getting acquired by IT services firms,' said Ashutosh Sharma, research director at global firm Forrester Research India. 'This is a throwback to digital era when most service providers acquired a number of agencies and digital specialists. This will happen and continue over next 3-5 years.'
According to data platform Tracxn,
Infosys
' most active year in terms of acquisitions was 2015 with five acquisitions, while Wipro's was 2020 with six cumulative acquisitions. Over the past three years, both Bengaluru-headquartered IT majors averaged nearly one acquisition per year, it said. Bellwether
TCS
is the only exception with no acquisitions announced since 2020.
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Mid-sized players
Coforge
,
Persistent Systems
and
Happiest Minds Technologies
, among others, have made at least two acquisitions each, all are specialists either in data, engineering, analytics and/or software services with built-in AI, transformation and consulting capabilities.
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The acquisitions come at a time when software service providers are struggling to grow revenue base amid subdued demand and uncertain macro environment. Analysts believe that industry players with higher cash reserves could eye building expertise and also scale up inorganic route amid continuing caution around tariff-led impact on organic business demand.
'We are in a period where IT majors need to execute on a dual mandate of perform and transform,' said Prashant Shukla, vice president at technology-focused research and advisory firm Everest Group.
He said while conventional thinking would suggest a cautious approach to acquisitions in FY26 amid mounting margin pressures and uncertainty (balance short-term performance), some companies are using this as an opportunity to acquire assets cheaper for their capability 'transform' efforts.
According to other experts, this is also a period when mid-cap companies have been outperforming the larger peers and could be readying for consolidation.
'Tier-1 IT companies have been lagging on growth and commentary. But our mid-cap IT players have actually shown more agility in their thought process leadership… they are representing a very different market outlook,' said Shobhit Jain, MD and head, enterprise, technology & services for investment banking at Avendus Capital.
In the broader market, M&A remains an important theme across the board.
'Even when companies have exhibited flat growth, we have not traded any asset below a 3x revenue multiple over the last 3-4 years, and I don't see that changing,' the banker said, adding that private equity is also getting aggressive in doing M&A.
As per consulting major EY, enterprise tech M&A hit 857 deals globally in 2024, up from 722, with values rising to $32.2 billion.
'M&A is strategic to Wipro. When we have the right opportunity and it falls into our strategic priorities, we go for it. We are constantly looking for an opportunity around that which will help us drive our strategic priority. That is something that is part of inorganic growth for the future as well,' Srinivas Pallia, CEO and MD of Wipro Ltd, told media persons in a post-results conference in April.
Largest global player Accenture, which is typically big on acquisitions, continued its streak taking the total acquisitions to 11 deploying $500 million since September, including investments in the talent and skilling space, a key segment for technology services firms. US-headquartered Cognizant, with a large workforce in India, made two bets during the past year adding to its inorganic growth.
Among bigger deals, Capgemini is said to be in advanced talks to acquire business process outsourcing (BPO) specialist firm WNS.
The companies did not respond to requests for comment.
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