TCS, Infosys first in line for spoils of a Covid wipeout

Mumbai | Bengaluru: Cash rich IT services providers Tata Consultancy Services, Infosys and Wipro are likely to go on an acquisition spree, as companies will be available at discounted valuations due to the Covid-19 crisis. The three companies collectively have cash reserves of more than $13 billion, a substantial firepower in a downturn which could help them buy smaller rivals in niche segments.Acquisitions may help them gain strategic capabilities and market access, and boost growth once business is back to normal. They could look for opportunities in cognitive and self-healing IT platforms and cloud-based cyber security products, which are in demand by their clients.“Our largest M&A to date was actually executed at the peak of the global financial crisis,” TCS chief executive Rajesh Gopinathan said conin a post-earnings analyst call. “We are not shy of M&A and we believe that the best time to execute it is when nobody else is buying.” During the height of the 2008-29 US recession stirred by the financial crisis, TCS bought Citigroup’s captive business process centre in India for $505 million, which helped it sign a decade-long $2.5 billion contract with the global bank to provide services. “Our stance is that for the right asset at the right price, we are always game for it. And if this current market throws up those opportunities, we would definitely snap them up,” Gopinathan said.TCS, Infosys and Wipro’s net cash holdings were $5.9 billion, $3.6 billion and $3.53 billion, respectively, at the end of March. TCS, India’s largest IT services firm, has in the past acquired firms such as consultancy Bridgepoint Group and design firm W12, besides purchasing certain assets of the Indian technical centre of General Motors.Among India’s IT services companies, Wipro has been the most acquisitive. India’s fourth largest software exporter remains keen on deploying cash for more mergers and acquisitions, despite Covid-19-related slowdowns. “This could be the time (when) we could even look at a possible wellpriced, M&A opportunity without having to worry about whether we have sufficient cash or not,” Wipro chief financial officer Jatin Dalal said.Since 2016, Wipro has spent over a billion dollars to acquire assets such as HealthPlan Services (HPS), cloud enablement firm Appirio, design consultancies such as Designit and Cooper, besides small firms such as InfosSERVER and International TechneGroup. According to analysts, an economic downturn is also the right time to pick companies due to lower valuations.“As the current Covid crisis could lead to erosion in valuations, both TCS and Infosys could scout for acquisitions or buyout captives of select global clients,” senior IT analyst at brokerage firm Centrum Madhu Babu said in a recent note. In March, Infosys closed its $250 million acquisition of Simplus, a Salesforce implementation partner. Previously, it acquired a majority stake in Stater N.V., which offers mortgage administration, from ABN AMRO for around Rs 1,000 crore. It also bought Fluido, a Finnish salesforce consulting firm. “We have enough of headroom and we'll have to see if any assets come up which interests us during this period, but we are open to everything at this stage,” Infosys CEO Salil Parekh said.The prized assets will be platforms and patent-led products, according to Peter Bendor-Samuel, the chief executive of US-based IT advisory and research firm Everest Group.

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