The mid-level IT department focuses on acquisitions

Bangalore: After large IT services companies, Indian mid-market IT companies are starting to aggressively acquire engineering services providers to increase their revenues in the face of slowing demand.

This month, mid-sized IT company Coforge announced that it would acquire a 54% stake in Cigniti Technologies at Rs 1,415 per share. Cigniti has a solid digital engineering practice with multiple offerings that will likely expand Coforge’s engineering services offering following its acquisitions.

Similarly, Happiest Minds Technologies has acquired entities such as PureSoftware Technologies and Aureus Tech Systems in recent quarters. Both of these companies offer significant engineering services components, which will likely expand Happiest Minds’ service offerings.

Experts believe that mid-tier companies are also building capacity in the ER&D (engineering and research and development) space, given the growth prospects of this segment in the coming years.

“Like large companies, mid-tier companies have now started acquiring companies to build capacity in the engineering services space. Because this space remains one of the fastest growing areas in the IT industry,” Pareekh Jain, IT outsourcing consultant and founder of Pareekh Consulting, told Bizz Buzz.

Large IT companies including Infosys, HCL Tech, Capgemini and many other global companies have been acquiring ER&D companies in recent quarters.

Last year, HCL Tech acquired 100 percent stake in German automotive engineering services company ASAP Group for $279 million (about Rs 2,300 crore). This acquisition is likely to enhance HCL Tech’s capabilities in the automotive engineering services sector, especially in e-mobility, autonomous driving and connectivity. ASAP has many key customers in Germany as it works with leading automotive OEMs and Tier 1 suppliers from its headquarters in Ingolstadt. This acquisition gives HCL Tech access to ASAP Group’s large customer base.

Similarly, Infosys announced last month that it would acquire in-tech, a provider of engineering research and development services focused on the German automotive industry, for about $480 million. In January, the Bengaluru-based company announced the acquisition of InSemi, a semiconductor design and embedded services provider, for around Rs 280 crore.

According to experts, the share of outsourcing in the engineering services space is likely to increase in the coming years. Of the total annual R&D spending of $1.8 trillion, only 5 percent is currently outsourced to service providers. Most experts believe this figure will likely rise to around $300 billion over the next three years.

As digital spending decreases, resulting in increased profits; IT companies are building capabilities in areas where customer spending remains persistent, they say.