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Wipro Technologies has managed to dispel the market perception of Indian IT
majors being averse to acquisitions. In the space of a year, the company snapped
up six companies in modest-sized deals ranging between $10-$75 million.
Most of the acquired companies were based in Europe and dealt in niche verticals
or R&D services. So will this strategy help Wipro to globalize its offshore
capabilities better?
Sabyasachi S Satyaprasad, senior director, neoIT, feels that more such small
acquisitions would continue in the course of the year, not just by Wipro but
also by other Indian majors.
“Wipro's acquisitions are more to achieve competencies and geographical reach
than to achieve scale,” he feels. He reckons that 15-20 such acquisitions would
happen across the industry.
Take the company's NerveWire, AMS and Mpower buy-outs. These armed Wipro with
skills in areas like financial securities and utility consulting and niche
technologies in the payment space respectively.
The rest of the recent acquisitions were of mid-sized European specialist
companies like Enabler for its retail solutions; Newlogic for wireless IPs and
Saraware for embedded technology capabilities and access to Nordic
countries.
Besides competencies, the company has also landed key customers to its kitty
such as GM, MasterCard,Tesco, Esprit, Philips, Shell and Ericsson.
Says TR Madan Mohan, director —consulting (ICT Practice), Frost & Sullivan
India: “ Wipro, has adopted a technology-consulting approach akin to Accenture,
and is focusing on telecom, technology and retail areas to build its technical
competencies. Domain expertise complementing technology business (telecom and
R&D services), financial solutions, retail and utilities is where the current
focus of acquisition and we expect it would seek expertise in automotive and
aviation engineering space as the contributions from these sectors is witnessing
an increased growth.”
ROI for buy-outs
Mohan thinks that Wipro's shopping bill of $310 million in the last three years
has been well spent. “If one looks at revenue contributions of sectors that have
benefited from these buys, the investments appear to be paying off. Consider the
telecom practice that was stagnating at a growth rate of 11 per cent and
contributing about 15 per cent in the third quarter of 2003. It now has an
impressive growth rate of 28 per cent in the quarter ending December 2005.”
Similarly, by buying out AMS, Wipro got into utility consulting, strengthened
its business relationship with Shell (brings in about $12 million/quarter), and
increased its chances of consideration in Shell's $3 billion outsourcing project
that eventually went to IBM and Wipro.
Its NerveWire acquisition, translated into a precious multi-year contract with
General Motors (GM). Consider this, New Logic acquisition brought in revenue of
$1.3 million in the quarter of December 2005. This acquisition alone is expected
to bring in $65 million revenues for next 10 years.
Wipro's very recent Enabler acquisition is expected to boost its retail
practice, which now contributes $200 million (13 per cent) to its overall
revenues and employs around 2500 engineers. Enabler's revenues of around $40
million would get added on Wipro's balance sheet this year onwards.
It ain't over yet
We haven't yet seen the last of the “string of pearl” acquisitions from Wipro.
The company is still sitting pretty on a cash pile of $900 million.
Providing an IT industry-wide view, Satyaprasad says that by 2007, he expects
Indian IT service Cos to go for larger consolidation-this time for scale rather
than to achieve competencies. He predicts that with market perception changing
even in the traditional European market, Indian companies could go for
acquisition of assets, something which most Indian players are avoiding given
strict labor laws in Europe and also the inherent market risks.
(With inputs from Shashwat Chaturvedi in Mumbai)
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