Guest Column

M&A in the Technology Services Industry in India

November, 2019

The Indian technology services sector primarily has been dominated by the heritage companies – TCS, Wipro, Infosys, Cognizant, Tech Mahindra and HCL.

As the market gets perfectly competitive, winning at the legacy application services is directly co-related to cost competitiveness. The first phase of market dynamics in this sector during the early 90s was dominated by a single driver i.e. cost. Most companies focused on building scale and the key differentiator was people supply chain. The probability of win was directly proportional to the vendor’s ability to source skilled resources faster and cheaper than anyone else. Almost every one of the heritage firms as measured by the net headcount addition quarter on quarter and that was the key forward-looking performance indicator that drove investor actions.

As the number of technology interventions like cloud, digital, DevOps began to disrupt the industry, began the next phase of differentiation between these players. The traditional cost arbitrage lever was no more a key differentiator. Clients expected key skills from these players that can supplement the clients’ modernization journey. Hence, they began the focus on building capabilities; some chose to follow the inorganic route while some were comfortable with the organic path.

Worldwide 60+% of M&A happening in the United States, about 25% in the EMEA region and 15% in APAC. Specifically, in the United States, in terms of count of transactions, the cross-border M&A steadily increased between 2013 and 2017, followed by a decline in 2018 to 1250 transactions. Same for the aggregate value of cross-border transactions, which maxed at $ 500 Bn in 2016 and has come down to about $ 290 Bn in 2018.

In terms of the industry focus, 23% of overall transactions were focused on the technology sector, followed by healthcare which was 13.46 % and oil & gas about 9%. Interestingly, of all the US outbound transactions, the second most targeted region was India, comprising of a total of 18 transactions, and Flipkart’s acquisition being the dominant one contributing 16 Bn.

In India, the M&A, outbound transactions for 2018 were at $ 13.4 Bn, a five-fold increase from the previous year, and the biggest pie was for acquisitions focused on the materials sector followed by the technology sector which comprised of deals totalling 2.2 Bn. 

Below is a snapshot of the # of acquisitions and divestitures done by the dominant Indian technology services players in the past 5 years (2015 till 2018)


Acquisition Archetype


Cross-Leverage (1)

Top-Up (2)

New Bets (3)

















Tech Mahindra




Total by Archetype




The first archetype deals with playing within your core categories and snapping up targets that have a unique brand or solution offering, the second one focuses on geographic expansion, the addition of new customers while the third archetype is about adding completely new offerings, something that the parent hasn’t done earlier.

Research suggests that acquisitions under archetype 1 generate total shareholder returns (TSR) above the median for this sector, archetype 2 generates slightly below the median TSR and archetype 3 is what generates the lowest returns, far below the median TSR for the entire industry.

The other lens is the M&A approach being taken by these firms is whether programmatic or large transaction. Based on research the returns are high when the acquirer follows a programmatic approach to M&A i.e.1 or 2 meaningful acquisitions based on the market cap acquired.

Considering both drivers – M&A approach and M&A archetype it appears that almost all the players have the appetite to build capabilities inorganically and they follow a programmatic approach, TCS being the only exception. The build vs. buy vs. partner analysis clearly tilts towards buying when it comes to adding new capabilities and venturing into newer pastures. While the aggregate numbers by acquisition archetype show that overall the sector has the right strategy by aggressively acquiring newer skills and acquiring companies that will get vertically integrated with its own categories below are some points to ponder upon as the transactions are closed and the value capture phase begins.

Integration for success:

M&A Archetype: Cross-Leverage

  • Retain the differentiating levers: The integration strategy needs to be carefully drafted to retain the best practices and integrate them well in the existing portfolio offerings and extending them to the clients
  • Be sensitive towards culture: Most such companies develop a close-knit culture and employees are strongly aligned towards the founders and co-founders. It is critical to identify a senior leader from the parent who would be the liaison officer and facilitate conversations between the target and parent business units
  • Be realistic about synergy timelines: With M&A markets getting crowded, valuation potentially becomes a direct function of demand-supply. Synergy and growth assumptions need to drill down to the tactical details 

M&A Archetype: Top-Up

  • Assess operational synergies early-on: Cost savings drivers could come from the unification of multiple aspects – procurement contracts, insurance contracts, software licenses. Having clarity around renewal timelines, local employment laws and a thorough assessment of vendor contracts during due diligence would help to unlock of value
  • Detail out the account strategy: Evaluate accounts grounds-up and categorize them into – nurture, growth and tail. This should determine the strategy by account - salesforce consolidation, co-ownership by industry sales leaders, savings plough back and services cross-selling

M&A Archetype: New Bets

  • Be patient about unlocking synergies: This is one of the toughest acquisitions scenarios as the target’s operating category is different from that of the parent. The value chains are different. Some straightforward cost synergies could be general & administration, procurement and software license consolidation
  • View the target standalone: The idea here is to ensure that the target is generating sufficient cash to meet its net working capital requirements and profitable. Multiple approaches can be used here e.g. lean or zero-based budgeting etc.
  • Plough back savings as investments: Unlocking growth synergies is often a function of identification of the right amount of investment required for developing a solid marketing engine and innovating faster. This has to be tied-back to an account prioritization strategy

M&A in the Indian technology services sector contributes to a very small percentage of the overall transactions happening. However, more than the size and count of transactions what matters is whether each of the transactions has unlocked value that would not have been possible through the organic path and have returned TSR above the median for the industry.

Ramendra Rout
Director – M&A (Integrations & Divestitures), Wipro Technologies

Wipro for the past several years has been a programmatic acquirer focusing on digital, cyber security, cloud and engineering targets in the mid-market sector.  Ramendra in his current role leads all aspects of operational transaction services which includes – synergy planning, go to market strategy, operating model design, day 1 functional integration readiness and change management.