TCS : Acquiring capabilities through M&As
Conventional
wisdom sa
12 May 2006
Conventional wisdom says when a company wants to expand its operations fast and is flush with funds, it should go on an acquisition spree. Tata Consultancy Services, however, believes in looking beyond the obvious and scripting its own unique solution.
"We are not chasing revenues through M&As," says N Chandrasekharan, executive vice-president and head of global operations at TCS. "However, we do recognise that we need our acquisitions, alliances and partnerships, in order to leapfrog or dominate in a marketplace, as well as to bring in additional strategic capabilities." With this focused objective, the TCS think tank has devised an M&A strategy that would help it expand capabilities rather than merely assets.
The value of its six acquisitions, at under $100 million, amounts to less than 5 per cent of TCS's $2-billion-plus revenues. This bears out the fact that these M&As, though an integral part of the company's strategy, have not been critical to its growth. Each of the acquisitions has enhanced the company's skill and delivery capabilities, though their contribution to revenues has not yet been significant.
Strategic shopping
TCS's first M&A shopping expedition was restricted to the home market. Between 2001 and 2004, it acquired CMC, Airline Financial Support Services India (AFS), Aviation Software Development Consultancy India (ASDC) and Phoenix Global Solutions (India). The second half of 2005 was more hectic, with the merger of Group company Tata Infotech, the acquisition of Australian company FNS and the Chilean company Comicrom.
The FNS buyout last October, is perhaps a particularly significant addition. With 40 per cent of TCS's revenues coming from the banking, financial services and insurance sectors, this acquisition not only adds to the company's bouquet of solutions and services, but also comes at a critical point of time, when banks around the world are modernising and require next-generation systems. The FNS core banking package is robust, has proven scalability and an established global customer base, and TCS can now address the needs of international financial institutions more comprehensively.
Nudging the FNS announcement last October, came the news of TCS's 'structured deal' with the UK insurance major, the Pearl Group. The deal, which involves both the entities setting up a subsidiary with TCS as the majority partner, is not an M&A, but because of its considerable leveraging potential, it does add traction to the company's future mergers and acquisitions.
The ink had not yet dried on the Pearl deal when TCS made a strategic and dramatic move to enlarge its footprint in Latin America with the acquisition of the business process outsourcing Chilean company, Comicrom. The region has large banks and telecommunication companies but no effective services from a single provider. With TCS's existing assets in the region and Comicrom's own firm base in the banking and financial services sector, it is now uniquely positioned to service this market. The recent Tata Infotech merger supplements the capabilities of TCS in the areas of telecommunication and defence and opens up opportunities for cross selling.
Tata Consultancy Services
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