Execution is key, say analysts on Wipro-capco deal

Wipro has moved to a new organisational structure from the beginning of 2021, and analysts are wondering if Chief Executive Officer Thierry Delaporte’s attempt to bolster the firm’s presence in the banking, financial services and insurance (BFSI) space by acquiring Capco for $1.45 billion is a step too soon.

Though many agree that Capco may be good as a target, Wipro, which has been the most aggressive player in acquiring firms compared with its Indian peers, does not have much to show in terms of performance. Girish

Pai, head of research, Nirmal Bang, says in a report that the key to this acquisition will be execution. “After the

Capco acquisition, Wipro’s BFSI practice will be just one-third the size of Accenture’s and TCS’ (including its platforms business).

The key will lie in execution and value extraction. Wipro’s track record on that score from acquisitions over the last two decades has been less than average.”

Pai said: “Despite doing the most M&AS (mergers and acquisitions) among India heritage IT players, Wipro has not been able to record industry-matching growth in the last 10 years, and has, therefore, slipped in revenue ranking in the industry.”

Before Capco, Wipro’s biggest acquisition was Infocrossing in 2007. Even back then, it had sounded bullish about the acquisition and how it planned to get a bigger share of the infrastructure management services space, but HCL Technologies beat Wipro in the space in FY14.

Industry experts also wondered if the timing of the acquisition was ideal. Restructuring and execution under CEO Delaporte has just begun, the company has seen some old timers leave and some have joined, and in the middle of this it will have to work on integrating the new company.

“Having a consulting focus to build business is always better as it allows one to create downstream opportunities. But my only concern will be integration and execution. With so much happening in the company, I hope Thierry is not moving too fast,” said Pareekh Jain, founder and lead analyst, EIIRTREND.

Most analysts are calling Delaporte’s acquisition a radical change. He demonstrated this by restructuring the company last year and getting it ready for execution from this year. He has also simplified the business and added new leaders in the European and US regions.

“This buy is another step in that direction — a right direction we believe. We only remain concerned about two things: One, growth/margin profile of Capco, both of which appear to be weak, and two, successful integration of the large complex business. Prior to this, HCL Tech and Techm have made similar bold moves in the M&A space with mixed outcomes. We would hate if Capco acquisition turns out to be similar to what LCC turned out to be for Techm,” said a note by Phillip Capital.

For Delaporte, this buy fits into the first of the five-themed strategy that started to take effect from January 1. The first phase is to accelerate growth focus and scale in certain markets and sectors to achieve leadership. While he is not falling short on effort, the key will be execution.