Most of them are making acquisitions to strengthen their capabilities so that they do not miss out when technology spending, especially in discretionary spends, returns, say analysts. Big IT firms such as Accenture, Infosys and IBM along with many midcaps like Persistent, Cyient, Global Logic and others have recently acquired smaller Indian firms working in cutting-edge technologies.
This month, IBM acquired a Bengaluru-headquartered software-as-a-service (SaaS) startup Prescinto for an undisclosed amount. Later in the month Hyderabad IT engineering service provider Cyient acquired 27.3% in US based Indian startup Azimuth AI for $7.25 million. The acquisition will expand Cyient’s capabilities across the semiconductor industry.
Last month, another engineering service provider, Persistent Systems announced its intent to acquire Pune based data privacy management firm, Arrka, for Rs 14.4 crore. Last month Infosys also said that its plans to invest up to Rs 17 crore (approximately $2 million) in space-tech startup, GalaxEye Space Solutions, as part of Infosys Innovation Fund. The cash investment will involve Infosys picking up a minority stake, less than 20%, as part of the series A round to pick up equity and compulsory convertible preference shares.
In July, IT major Accenture acquired Bengaluru-based chip design startup Excelmax Technologies for an undisclosed amount. In the same month, Infogain acquired US based Indian startup Impaqtive. In February this year, ChrysCapital backed IT firm Xoriant acquired Bengaluru based cloud management solutions provider MapleLabs for an undisclosed amount.
Avinash Vashistha, chairman and CEO of Tholons and former chairman and CEO of Accenture India, said as IT firms are struggling to grow their revenues, they are taking the path of “Solutions to Valuations.”
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IT firms are scouting for startups having best market fit solutions which will eventually jack up their revenues and valuations. Explaining, he said, “If for example, they invest $50 million in a startup, they get the potential to generate $350 million by selling these solutions to their larger client base.”“Startups don’t have large market access but have disruptive solutions. On the other hand, IT firms have a large customer base but lack these disruptive and innovative solutions. The synergy in such acquisitions give a huge boost to the acquirers’ revenue. Eventually, this new revenue will reflect in their valuations, generally by a multiple of three. So, in the same example, the IT firm will see its valuation going up by $1 billion.”
By acquiring niche talents from startups, Vashistha explained further, IT firms are also able to learn the ropes to hire another 500 such talents in future directly.
Gaurav Parab, principal research analyst, NelsonHall, said, “Armed with plenty of cash, IT services companies have found a fertile hunting ground for startups in India around deep tech, AI, and Space applications to augment capabilities, to address white spaces (gaps in their portfolios) especially in high value work like design, and above all get access to skilled resources that normally takes years to build internally.”
“Large IT firms have now cracked the code of the startup innovation culture and are able to integrate acquired companies with the services organization, while still maintaining a hands-off approach. It is a win-win proposition for both, with startups getting access to resources, especially in times of a funding crunch, and also to an entire gamut of Fortune 1000 companies that the IT firms serve,” Parab added.
