Two interesting observations from recent acquisition spree in the Engineering Services Arena

This year has been a particularly hectic year in terms of M&A! While towards the start of the year we saw acquisitions across asset-heavy verticals, mid year disruptions in the automotive space and limited pick-up of discretionary spending across the board saw 2 significant developments :-

1️⃣ Both the IT and engineering services providers are re-pivoting to strengthen their competencies in the key niche areas where they are already dominant

👉 The first case in point being Cyient where we earlier saw multitude of non-niche acquisitions related to digital transformation and wireless telco engineering. The current acquisition of 20%+ stake in Azimuth AI deepens their expertise in dominant niche

👉 The second case in point being IBM which has deepened its Maximo App Suite (MAS) capability by acquiring Prescinto, an IBM Company. I find MAS to be the most dominant suite in the space being leveraged by every major system integrator across asset-heavy enterprise zones. This acquisition, unlike the past is in IBM's core suite and broadens client base to solar panel / wind turbine asset management among others

2️⃣ Return of asset-purchase agreements among wave of share purchase M&A's

👉 Persistent Systems acquiring SoHo Dragon in an asset-purchase fashion - acquiring only certain specific technologies and client contracts

👉 Generally asset-purchase agreements are common where majority product innovation has taken place and the buyer earns quick leverage of the client contracts with limited (beneficial) liabilities to assume. In innovation driven agendas we would see more of the share purchase happening where business continuity and innovative R&D is key

In regard to the evolving M&A landscape I also got chance to speak with Pramit Ghosh (PG) who shares similar interests as me and tracks the broader IT services market

Pramit says "Given the current scenario, we are at a phase wherein enterprises are looking for capabilities and business transformation that can sustain their livelihood even during situations such as the COVID pandemic. Providing a vendor perspective, Indian heritage GSIs such as HCLTech, Wipro, Infosys rely heavily on their engineering heavy DNA, which gives them an edge in terms of solution integration along with their expertise in consulting and service transformation capabilities, are able to open new doors for enterprises to explore as far as revenue streams are concerned. HCLTech which acquired a full stake in ASAP group, a German Automotive engineering services provider which specializes in Autonomous driving, connectivity, E-mobility can enhance the experience for enterprises clients and drive innovation through their niche expertise. Similarly, Cognizant’s acquisition of Belcan, an US-based Engineering, Technical and Consulting services provider specializing in aerospace, defense, space, government services, automotive, and industrial markets and Coforge’s acquisition of Cigniti Technologies, an Indian Digital Assurance and Engineering (Software testing) Services provider. The intention is quite clear that the major objective is to enhance competencies and directly compete with specialized ER&D entities It is a pattern that has emerged right after COVID when vendor organizations have realized the importance of smart innovative business models to drive revenue growth and at the same time create opportunities for their clients to explore more in terms of making end-user experience more efficient and sustainable. The onset of Generative AI and the boost in the Semiconductor industry has been the trigger point of companies while spearheading their chip building capabilities, along with incentivising each and every phase of the process"