Accenture set to spend $1.8 bn on buyouts this year

ACCENTURE, WHICH DOES AS MUCH BUSINESS AS TCS, INFOSYS AND WIPRO PUT TOGETHER, IS POISED TO OUTPACE THEM IN GROWTH THIS YEAR

Accenture Plc plans to spend $1.8 billion on acquisitions this year — more than what its three biggest Indian information technology (IT) rivals combined spent in the last three years — as it seeks to accelerate growth.

Aided by the planned acquisitions of analytics and cloud computing firms, Accenture, which does as much business as Tata Consultancy Services Ltd (TCS), Infosys Ltd and Wipro Ltd put together, is poised to outpace them in growth this year. The acquisitions plans were spelt out in a post-earnings call with analysts.

Accenture, which follows a September-August fiscal year, is expected to report 6.7% dollar revenue growth in the year ending August 2018, according to Keith Bachman, an analyst with BMO Capital Markets.

Indian IT companies, which follow an April-March fiscal year, will have to better their performance from last year or risk growing slower than Accenture.

TCS, Infosys and Wipro reported dollar revenue growth of 6.2%, 7.4% and 4.9%, respectively, last year. Although TCS and Wipro do not provide an annual growth forecast, Infosys expects its revenue to grow 6.1-8.1% this year — a guidance that some analysts say could be cut in the coming months.

This aggressive acquisition model of Accenture, which spent over $900 million in each of the last two years on buying companies, is driven by Fortune 1000 clients demanding from their IT vendors solutions that help them run their business better. Newer technologies, like data analytics and cloud computing, along with a strong consulting practice, are the growth drivers for technology outsourcing vendors.

A contrarian, conservative approach by its Indian rivals, which have together spent $1.66 billion in acquisitions since April 2014, appears to be to build digital capabilities from grounds-up, and this underscores the struggles at domestic IT firms.

Since April 1, 2014, TCS, Infosys and Wipro have together spent $1.58 billion on acquisitions, with an extra $80 million spent together by Infosys and Wipro through their corporate venture arms in making minority investments in close to two dozen startups.

TCS last invested $50 million in stitching together a joint venture partnership with Mitsubishi Corp in Japan in 2014 while Infosys has not made an acquisition in over 20 months. Wipro has spent $8.7 million to buy one firm in last eight months.