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In the Media

Wipro likely to effect a $200 million- plus acquisition in the IT space

10 – 15 deals being pursued across Wipro Technologies, Wipro Infotech, Wipro Consumer Care and Wipro Infrastructure

 
           
 
       
   
Sudip Nandy is the Chief Strategy Officer of Wipro and is at the helm of all M&As at Wipro. He discusses Wipro’s blended growth strategy in this Confluence exclusive.
1. Please give your view on the relevance of an acquisition based growth strategy for the IT industry – what is your view on companies such as Scandent that have grown principally through acquisitions and companies such as Wipro and TCS that have blended an M&A strategy into a robust organic growth model.

For companies such as Wipro or TCS, the motivation for acquisition is usually to fill specific gaps in their capabilities or to gain a foothold in a new market. Growth in the short term is primarily fuelled by organic means while acquisitions are a way to bolster or build capabilities for the long run.

Companies such as Scandent on the other hand have grown so far primarily through acquisitions – their model appears to be one of acquiring companies, transforming them using offshore as a lever and then building scale. For such companies, organic growth is like the icing on the cake, whereas for tier 1 players it is vice versa.

2. There is a view that the Indian IT sector has been conservative and has not leveraged acquisitions for growth and scale- your comments.

In my view, the Indian IT industry is still young and in a high growth phase. Given that the industry continues to grow at rates in excess of 30%, companies have focused on organic growth. Moreover, companies consider acquisition of competitors to gain market space once a certain scale has been achieved and the market is mature- and this is certainly not the case in our industry. So, lack of focus on acquisitions is not really a reflection of a conservative attitude but lack of compelling reasons and perhaps insufficient management bandwidth.

3. Please articulate the intent behind Wipro’s inorganic growth strategy.

From a long term perspective, these acquisitions are meant to fuel growth and enable us to reach our goal of being one of the Top 10 global players in this space.

To become a top global player, we need coverage across verticals and geographies, and hence we pick candidates that fill a void in this bigger picture, which we feel cannot be plugged through organic means in the time frames we are looking at.

Thus, the company we consider may help us enter a new vertical such as Defence, or expand our capabilities in a vertical, ex Utilities, or bolster a horizontal capability like Testing.

   
    We pick candidates that fill a void in the bigger picture, which we feel cannot be plugged through organic means in the time frames we are looking at.  

4. Please elaborate on the process followed for identifying the right candidates- how and when do the business units get involved? Please describe how you determine the fit between Wipro and the company being considered for acquisition.

The Strategic Planning Process and the M&A action plan are like the two strands of DNA at Wipro. During the Strategic Planning process, business units articulate their growth ambitions and inventory their capabilities to identify gaps in competencies, market-access or other key ingredients. This then becomes the starting point for evaluating if an acquisition would enhance growth prospects. The M&A team thus gets a “demand list” from various business units. The team, comprising Vice Presidents and GM level professionals, does a due diligence and interacts with the businesses before deciding on the right candidates. They also sometimes consult with partners and customers for validation.

Typically, the team picks candidates who are not “up for sale” but rather fit the needs of the business and then get into the process of establishing a dialog with the company.

   
    The strategic fit is very important and the over riding consideration- no acquisition has been done with a view to fulfilling short term growth targets.  

5. What process is being followed for post merger acquisition? Please describe with examples.

The level of integration is determined in conjunction with the business unit and the management of the acquired company, keeping the context of the acquisition and any special situations in mind. For example, Quantech is run fairly independently, Empower has been totally integrated and Enabler would fall somewhere in between. Once the LOI is signed, a GM level person from the business is deputed for between 6 months to a year to anchor the integration activities.

He becomes a confidant of the acquired company's CEO. This practice also helps infuse the Wipro culture and has been an important learning from past acquisitions.

Similarly, the operations and support teams from the acquired company are retained for a period of time in the same organization to ensure continuity and stability- later, they could be deployed to other roles within Wipro during the process of “roof top” consolidation.

   
    Once the LOI is signed, a GM level person from the business is deputed for between 6 months to a year to anchor the integration activities.  

Wipro is very clear that we will have only essential cost take outs during the integration period. No acquisition is done with the objective of a turnaround or with an objective of hollowing out an in-country operation, hence getting rid of people after acquiring a company is not a key component of our strategy.

Given our intent to continue on this path of inorganic growth, we have begun programs to create a cadre of integration managers. Also, people from the M&A team and HR team have been trained by Cisco’s M&A team. During the program, Cisco, a company that has a good track record in managing acquisitions, shared best practices. The Wipro M & A team also had an opportunity to participate in discussions on the subject at GE’s Crotonville facility.

6. Could you comment on how you evaluate the success of your acquisition? What metrics do you have in place and what time frames would you use to determine success?

Wipro’s success with acquisitions has been better than industry average as we understand from available literature. Since we incorporated the learning from earlier acquisitions into our evaluation and integration process, our overall M&A strategy has been honed, leading to better business benefits through the acquired companies.

With regard to metrics, there is a twelve quarter business plan for each acquisition which clearly spells out the goals for the period. Of this, the first four quarter goals are sacrosanct and there is some flexibility for the following eight quarters depending on the performance of the first four quarters and the prevailing business climate. There are also goals for different time frames- 3 months to 3 years.

Typical parameters that are evaluated include margins and critical people retention. A dipstick survey is also done within a month, and at regular frequencies thereafter, to ensure that people integration is smooth. A monthly dashboard with key business metrics is also prepared and presented to top management.

7. Do you see the industry experiencing large scale integration going forward? Do you see a role and place for smaller companies? What is your advice to emerging companies that are yet to find a successful growth strategy?

As Jagdish Sheth articulates in his Rule Of Three principle, eventually the global IT industry will be dominated by scale players. The smaller players therefore need to specialize and occupy a niche which can convincingly differentiate them from the larger ones. In the absence of that, they are likely to fall by the wayside. In this context, it is my prediction that we will continue to see acquisitions of different flavors in the years to come.