What do smart information technology companies do when big-ticket buyouts are elusive and there's immense pressure to ensure topline growth in depressed conditions? Go for 'niche' acquisitions, seems to be the answer.
Niche buys usually refer to acquisition of the assets of a customer or of a competitor.
Companies that have deftly dealt this card to beat lack of opportunities for inorganic growth include Wipro and Cognizant Technology Solutions.
Though such moves are seen as highly opportunistic and unplanned, it at least shows the way the industry needs to move when the Big Bang deals aren't forthcoming.
While acquisitions of customer assets are common in the US among large players such as IBM Global Services, EDS and CSC, it's the first time that companies such as Wipro and Cognizant that leverage the offshore model are doing it.
Cognizant was one of the first companies, which set the trend by acquiring the assets of United Healthcare Ireland Group, a subsidiary of United Health Group.
The move helped Cognizant to start its near-shore software development centre in Ireland and cater to its clients in Europe.
The strategy behind the acquisition move - Cognizant will have a global footprint and also re-in force its multi-cultural identity.
Cognizant is a US based company headquartered out of New Jersey and operates out of development centres in India.
Almost immediately, Wipro announced that it had struck a deal to acquire the resources of Ericsson's India research and development centres in the three cities of Bangalore, Hyderabad and Delhi.
The strategy behind the acquisition move - Wipro Technologies will be able to deepen its numero uno status in R&D outsourcing and also at the same time expand the number of its development centres.
In both these cases Ericsson and United Healthcare were customers of Wipro and Cognizant and they also netted 70 and 250 highly skilled software personnel respectively in the bargain.
Post these two acquisitions, these two companies were at it again. Wipro announced the acquisition of the energy practice of American Management Systems, a competitor.
The acquisition would add to Wipro's energy and utilities practice that according to revenue figures contributes close to 12 per cent of its total foreign revenues whilst adding 15 more customers in the US and Europe.
The tag - $26 million which according to competitors was highly worthwhile as the division annual revenues added to the same amount.
Prior to this development Cognizant announced the transfer of assets of cash-strapped Silverline Technologies relating to the provision of software services to American Express.
The deal ensured that Cognizant consolidated its position insofar as the financial services industry was concerned and also added two more development centres in Hyderabad and Phoenix in the US.
While Indian software companies have not yet made the much promised acquisitions of consultancy companies or boutique consultancies acquisitions like these, opportunistic and not replicable as a business model, does indicate the novelty with which acquisitions are done.
Both the acquisitions also indicate the global foot print that Cognizant and Wipro are charting out for themselves and reinforces the global delivery model and industry practices that these companies are establishing across countries.
According to Lakshmi Narayanan, president and COO of Cognizant Technology Solutions, "The two acquisitions by Cognizant are both tactical and strategic. Apart from improving our financial numbers, it helps us deepen our domain skills, enhance our global footprint and solidify our business continuity options."
Moves such as these also ensure that companies like Wipro and Cognizant are also able to cross sell more from their bouquet of software services to the clients that such acquisitions bring with them.
In a depressed market, where billing prices increases are out of question and bulk discounts are in and the only way to ensure growth is through volumes, novel acquisitions and these go a long way in helping Indian software companies boost their topline as well as get more customers in.
