IT majors bet on niche companies to bolster their consulting capabilities

By Ayushman Baruah

Indian IT services companies are acquiring smaller niche businesses to increase their consulting capabilities and gain a larger share of the lucrative consulting business. Management consulting is an area that most people in IT services want to get into, as it involves supporting the most senior members of a company, including the CEO or board who make critical decisions. .

“Management consulting firms make decisions at the highest level. IT services companies are relevant for a relatively small part of this execution program,” said Abhisek Mukherjee, co-founder and director of Auctus Advisors. “IT services companies want to develop strong management consulting capabilities because whoever directs the decision-making controls the execution program…and usually has a disproportionate say in who does the execution and how. »

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According to Gartner, the US IT consulting market was worth $51 billion in FY22 and is expected to reach $66 billion by FY25. Globally, this is of a $114 billion market, which is expected to reach $146 billion by FY25. Accenture, which is considered one of the best consulting firms in the world, saw a 13% increase in year-over-year of its consulting revenue, which was $27.3 billion in FY21. This figure represents more than 50% of its total revenue of $50.5 billion . Indian IT companies do not disclose their consulting figures, but analysts estimate that they represent less than 10% of their total revenue.

Infosys launched its consulting arm in 2004, but the division now contributes only a fraction of the group’s overall revenue, according to people familiar with the developments. In addition to large acquisitions of Lodestone (2012) and Noah Consulting (2015), Infosys continues to acquire smaller companies to bolster its consulting capabilities.

Most recently, in July, Infosys announced its intention to acquire BASE life science, a leading consultancy in the life sciences industry in Europe. “This acquisition strengthens Infosys’ deep expertise in life sciences, expands our footprint in the Nordic region and across Europe, and expands our digital transformation capabilities with cloud-based industry solutions,” said Ravi Kumar S, President of Infosys.

In April, Wipro acquired US company Convergence Acceleration Solutions (CAS) for $80 million. CAS is a consulting and program management firm specializing in driving large-scale business and technology transformation in telecommunications.

HCL Technologies created a separate line of digital consulting services four years ago as part of its overall digital business. “Digital consulting has been a major contributor to the growth of our Mode 2 (projects that innovate or differentiate the business) over the past four years,” said Anand Birje, Senior Vice President of HCL Technologies.

In May, HCL acquired the Swiss company Confinale, a specialist in digital banking and wealth management advice, to expand its presence in the global wealth management market.

Last year, Tech Mahindra acquired German company Beris Consulting, which offers automotive and mobility consulting services. Tech Mahindra acquired Beris to unlock growth in automotive computing and applications.

Experts believe acquisitions are attractive from two interrelated perspectives. “First, they allow the acquirer to fill specific capability gaps through these add-on acquisitions. Second, they provide an attractive gateway for new clients,” said Jatin Gulati, Partner, Auctus Advisors. “By design, IT services companies typically have a wide range of offerings, industries, and geographies. Small consulting firms represent attractive opportunities to gain experience and in-depth references in any of these aspects.

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In terms of return on investment, IT services companies generally consider these acquisitions over a period of two to three years.

“We think that’s the most they should. By their very nature, consulting firms have short- and medium-term visibility on their business and revenue trajectory. Since these acquisitions are focused on growth synergies, the tenure in which acquiring IT services companies seek to capture most of the growth synergies tends to be a 2-3 year horizon in the short to medium term. It is also sufficient time for the acquirers to onboard the consulting firm, their key people, their client relationships, and also implement the land expansion strategy,” Gulati added.

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