India’s IT services sector is witnessing a flurry of merger and acquisition activities, with several small and midsize firms announcing deals in the past four months in segments ranging from consulting and startups to engineering services, data and analytics.

Most of them are making acquisitions to strengthen their capabilities so that they do not miss out when the demand for technology spending, especially in discretionary projects, returns, say analysts. Big IT firms such as Infosys, HCLTech, Wipro and Cognizant too have announced M&A deals in recent months, but the numbers were fewer compared with their smaller rivals.

This week, two IT firms backed by private equity major Carlyle Group – Hexaware Technologies and Quest Global – announced acquisitions. While Hexaware acquired Softcrylic, a Minneapolis-based data consulting firm, Quest Global purchased a majority stake in People Tech Group, an ERP solution provider. Last week Coforge shelled out $220 million, or about Rs 1,826 crore, to acquire a 54% stake in Hyderabad-based Cigniti Technologies.

Happiest Minds this week signed a definitive agreement to acquire 100% stake in US-based digital product engineering company Aureus Tech Systems for $8.5 million in cash. This is the company’s third acquisition in 2024. Last month it announced buying Noida-based digital engineering and transformation services and solutions provider PureSoftware for $94.5 million.

April also saw another small firm, ITC Infotech, a subsidiary of ITC Group, entering into an agreement to buy 100% stake in a cloud consulting firm Blazeclan Technologies for Rs 485 crore. Temasek-backed UST, another unlisted IT firm with two-thirds of its employees based in India, acquired two firms in the last four months, including Australian consulting firm Strativity.

It’s not only these companies. From LTTS, GlobalLogic to Mphasis and Sonata, all have made acquisitions over the last couple of quarters. Ramkumar Ramamoorthy, partner at tech growth advisory firm Catalincs, said 2024 would go down in history as an year of acquisitions for the Indian IT industry.

He added: “The tepid revenue growth rates of top-tier companies, along with the need to meaningfully pivot to newer technologies and business models, is driving companies to acquire to tide over the current situation as well as to prepare themselves for the future. Given the strength of the balance sheet of many of these companies, I expect much larger acquisitions to happen this year.”

Small firms have shown extreme innovation in the use of new technologies and are getting aggressive with acquisitions to strengthen their capabilities, Ramamoorthy said. “With the larger players forced to manage their legacy business without cannibalising revenue, and at the same time innovate their way out, SMEs are increasingly evolving to be the niche innovation partners to enterprises of all sizes, specifically in newer digital areas.”

Adding some more factors behind this trend, Pareekh Jain, chief executive of EIIRTrend, said: “Some of the unlisted firms backed by PE funds are going for IPOs either this year or next year. They want to boost their top line and capabilities through acquisitions. Some are also acquiring consulting firms that will help them make inroads into the discretionary tech spend that is likely to open up this fiscal”.

Jain added: “For the past three years, smaller firms have been growing faster than large IT companies. These players are not just acquiring, but are also partnering with SaaS, AI and cloud service providers in a big way. When the spending revival comes back, these players would like to come to the clients’ table stronger than earlier and give more fight to larger firms.”

India’s IT services sector is witnessing a flurry of merger and acquisition activities, with several small and midsize firms announcing deals in the past four months in segments ranging from consulting and startups to engineering services, data and analytics.

Most of them are making acquisitions to strengthen their capabilities so that they do not miss out when the demand for technology spending, especially in discretionary projects, returns, say analysts. Big IT firms such as Infosys, HCLTech, Wipro and Cognizant too have announced M&A deals in recent months, but the numbers were fewer compared with their smaller rivals.

This week, two IT firms backed by private equity major Carlyle Group – Hexaware Technologies and Quest Global – announced acquisitions. While Hexaware acquired Softcrylic, a Minneapolis-based data consulting firm, Quest Global purchased a majority stake in People Tech Group, an ERP solution provider. Last week Coforge shelled out $220 million, or about Rs 1,826 crore, to acquire a 54% stake in Hyderabad-based Cigniti Technologies.

Happiest Minds this week signed a definitive agreement to acquire 100% stake in US-based digital product engineering company Aureus Tech Systems for $8.5 million in cash. This is the company’s third acquisition in 2024. Last month it announced buying Noida-based digital engineering and transformation services and solutions provider PureSoftware for $94.5 million.

April also saw another small firm, ITC Infotech, a subsidiary of ITC Group, entering into an agreement to buy 100% stake in a cloud consulting firm Blazeclan Technologies for Rs 485 crore. Temasek-backed UST, another unlisted IT firm with two-thirds of its employees based in India, acquired two firms in the last four months, including Australian consulting firm Strativity.

It’s not only these companies. From LTTS, GlobalLogic to Mphasis and Sonata, all have made acquisitions over the last couple of quarters. Ramkumar Ramamoorthy, partner at tech growth advisory firm Catalincs, said 2024 would go down in history as an year of acquisitions for the Indian IT industry.

He added: “The tepid revenue growth rates of top-tier companies, along with the need to meaningfully pivot to newer technologies and business models, is driving companies to acquire to tide over the current situation as well as to prepare themselves for the future. Given the strength of the balance sheet of many of these companies, I expect much larger acquisitions to happen this year.”

Small firms have shown extreme innovation in the use of new technologies and are getting aggressive with acquisitions to strengthen their capabilities, Ramamoorthy said. “With the larger players forced to manage their legacy business without cannibalising revenue, and at the same time innovate their way out, SMEs are increasingly evolving to be the niche innovation partners to enterprises of all sizes, specifically in newer digital areas.”

Adding some more factors behind this trend, Pareekh Jain, chief executive of EIIRTrend, said: “Some of the unlisted firms backed by PE funds are going for IPOs either this year or next year. They want to boost their top line and capabilities through acquisitions. Some are also acquiring consulting firms that will help them make inroads into the discretionary tech spend that is likely to open up this fiscal”.

Jain added: “For the past three years, smaller firms have been growing faster than large IT companies. These players are not just acquiring, but are also partnering with SaaS, AI and cloud service providers in a big way. When the spending revival comes back, these players would like to come to the clients’ table stronger than earlier and give more fight to larger firms.”