Indian IT firms acquire niche players in ER&D and GenAI to boost revenues

Indian IT companies such as Infosys, Wipro and HCLTech are increasingly turning to mergers and acquisitions (M&A) to expand into specialist areas such as generative artificial intelligence (GenAI) and engineering research and development (ER&D), due to limited organic growth opportunities in the global market.

Industry experts are predicting an increase in M&A activity, with notable deals such as Cognizant’s $1.3 billion acquisition of Belcan and Infosys’s $480 million purchase of Germany’s In-Tech. Despite the significant disparity in deal valuations, these acquisitions point to a growing trend.

HCLTech also recently acquired the Communications Technology Group assets from HPE to bolster its telecom capabilities, while Wipro picked up a 60% stake in Aggne Global to strengthen its presence in the insurance sector. Additionally, Infosys’ acquisition of InSemi, a Bengaluru-based semiconductor vendor, aims to bolster its AI and ER&D offerings.

The momentum is not limited to large companies, as mid-caps like Coforge and Happiest Minds Technologies are also actively pursuing acquisitions to bolster their sector expertise. For example, Coforge’s acquisition of Cigniti Technologies is expected to significantly improve operating margins by FY27.

Similarly, Happiest Minds Technologies acquired Noida-based digital engineering firm PureSoftware Technologies to bolster its capabilities in BFSI, healthcare and life sciences, while ITC Infotech’s acquisition of Blazeclan Technologies aims to enhance its multi-cloud and hybrid cloud services. Other notable acquisitions include LatentView Analytics’ purchase of Decision Point and Datamatics’ acquisition of Dextara Digital, reflecting the ongoing trend of consolidation and strategic growth in the IT industry through niche sectors.

Experts, including Phil Fersht of HFS Research, predict a surge in M&A activity in the coming year, especially in sectors that can generate additional revenue. IT firms are expanding their service offerings and profitability by acquiring companies that focus on niche segments. This allows them to quickly leverage specialized skills, knowledge, and technology while building solid relationships with customers. According to KS Viswanathan, vice president (Industry Initiative) at Nasscom, these companies are now better positioned to meet the growing demand for improved AI and product engineering capabilities, ensuring they can meet customers’ needs for greater agility and accountability in service delivery.

Even smaller M&A deals, such as Happiest Minds’ acquisition of US-based digital product engineering firm Aureus Tech Systems for $8.5 million to bolster the former’s engineering capabilities, and the acquisition of Mumbai-based AI startup Arya.ai by IT firm Aurionpro Solutions for $10 million, are aimed at expanding Aurionpro’s fintech offering to enterprises, facilitating responsible, accurate and auditable AI deployment.