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Wipro: Stress on acquisitions

May 19, 2003

Grappling with economic slowdown, globally, IT companies are looking at acquisitions as a means to higher and sustainable growth in the future. In this context, strategic acquisitions by Indian software companies have also intensified. Realistic valuations have further aided the process. In the Indian context, software major Wipro Technologies has been at the forefront of achieving growth through acquisitions. Wipro’s acquisitions have been mainly undertaken to reinforce its global delivery model. The company has made various acquisitions in the recent past in order to strengthen its existing service offerings as well as diversify in to new areas like IT Enabled Services (ITES). FY03, in particular, was a year of ‘bold moves’ for Wipro. Its latest acquisition, NerveWire Inc., is a US based business and IT consulting company serving financial services clients. Wipro has been aggressively looking at acquisitions of companies in the enterprise, finance and IT consulting arena, and has been eyeing domestic as well as overseas market for prospective companies in this regard. This acquisition would, thus, help Wipro to leverage upon its existing strengths in the BFSI segment (14% contribution to IT services revenues in 4QFY03).

Company Segment Deal size ($ m)
Spectramind BPO 70
Global Energy Practice Utilities 25
GE Medical Systems IT Ltd. Healthcare 6
Ericsson's R&D centres Telecom Undisclosed
NerveWire Inc. BFSI 18.7

In the past Wipro has made acquisitions in diverse areas. For example, in the second quarter of FY02, the company acquired a 66% stake in Spectramind, India’s largest third-party ITES company. Wipro has later acquired the entire stake of Spectramind in 3QFY03. Along with offering integrated services for all ITES needs of Wipro’s clients worldwide, this acquisition will also help Wipro maintain its high levels of quality, as Spectramind also operates on a Six Sigma platform. This quarter also saw Wipro acquiring GE Medical Systems IT Ltd. This acquisition will help Wipro in the way that the GE Medical Systems will now distribute Wipro’s healthcare IT products in Asia-Pacific and South Asia. Also the Intellectual Properties acquired will provide the company the platform to expand in the healthcare IT market globally.

In 3QFY03, Wipro had bought out American Management Systems' (AMS) global energy practice for $25 million in cash. This deal might see bigger businesses coming Wipro’s way as deregulated utility markets in the US and Europe are free to outsource their IT needs abroad. The strong potential of this segment is highlighted by the fact that Wipro’s largest deal in this segment has been a $70 million deal with the telecom subsidiary of Lattice, UK’s largest gas pipeline group. This is one of the largest deals seen in the Indian software services space. Wipro also has other utility companies like Thames Water, Transco and Pepco Energy in its client list. Bringing AMS utilities practice under its fold will thus help Wipro enhance its ability to deliver end-to-end IT solutions for players in the energy and utilities space that contributed around 17% (4QFY03) to Wipro’s IT services revenues.

Another major acquisition in the same quarter was that of the IT related assets of Ericsson's R&D centres in Bangalore, Hyderabad and New Delhi. One major benefit that Wipro has garnered from this acquisition has been a contract worth $17 million to provide consultancy services to Ericsson AB, till the end of December 2004. This acquisition in the telecom R&D space is further likely to benefit the company as Wipro still derives a significant part of its revenues from the telecom space. The R&D center is likely to further enhance Wipro’s capabilities in this space from which the company got around 21% (4QFY03) of its IT services revenues.

However, the story doesn’t end here. Wipro is working on more acquisitions and has identified certain companies in this regard. The company has also allocated an amount of Rs 1,400 crore (US$ 300 m) specifically to fund these acquisitions. These acquisitions are likely to reinforce Wipro’s global delivery model and the business practices that the company is establishing across geographical boundaries. Also, these will ensure that Wipro is able to cross-sell more from its bouquet of software services to clients that such consolidation brings with them.

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