Vantage
The global IT services industry faces a paradox today. Artificial intelligence is reshaping its business model with more focus on intellectual property and specialized capabilities rather than the ability to provide large numbers of people. Companies are struggling to align with this new reality, facing tremendous pressure on their growth.
“Falling valuations offer well-positioned acquirers an opportunity to add scale, fill capability gaps and reposition their portfolios for the AI era.”
The acquisition waves
Large IT services companies are accelerating acquisitions to strengthen their capabilities, with AI, cloud, data and industry expertise high on the agenda. Buying a specialist can shorten the time needed to build a credible offering while bringing experienced teams and established client relationships.
As automation reduces the need for labor-intensive delivery, a larger workforce alone offers limited advantage. The most compelling targets help acquirers solve complex client problems, deepen domain expertise and secure differentiated intellectual property.
The global IT companies have been on a buying spree for the last 24 months, investing heavily. Even bigger Indian IT companies have acquired multiple assets in the last 24 months, understanding the importance of inorganic growth to keep pace with the fast-evolving IT services market.
Why lower valuations create an opening
Lower valuations are making the M&A scenario even more compelling. Buyers must distinguish temporary market pessimism from a lasting deterioration in earnings. AI may expand demand for some services while reducing the effort required for others.
“A business that looks inexpensive against yesterday’s profits may be costly against tomorrow’s.”
Diligence should therefore test pricing power, client concentration and the durability of specialist skills. Public trading valuations provide context; control premiums and competitive bidding still shape the price of an individual transaction. The investment case must survive realistic assumptions about growth and integration costs.
Valuations have fallen sharply in recent months. The story is even bleaker if we consider from the AI Inflection point of Dec 2022. Global and Indian majors and digital engineering have lost a large part of their value and these are public trading multiples, not acquisition multiples.
Turning capability into growth
Acquisitions are always high-impact events that can distract management, unsettle clients and put invested capital at risk. Competitive bidding adds to the danger when buyers stretch assumptions to win. Geopolitical exposure and delivery concentration demand the same scrutiny as revenue forecasts.
Integration planning must begin before signing, with clear accountability for financial controls, delivery and risk. From day one, employees need clarity on roles, reporting lines and incentives, while retention plans must protect key talent and give acquired leaders meaningful responsibility.
Revenue synergies need a concrete sales plan; cost savings need defined actions across finance, HR and technology. Cutting too fast can erode acquired capabilities; moving too slowly prolongs uncertainty.
“Deal size opens the opportunity, but integration determines the outcome.”
Historically, many M&A deals result in losses. Integration failure is the major reason behind these losses. Integration is an ongoing management responsibility that extends well beyond closing.
From discount to strategic advantage
The lesson is to buy with conviction and integrate with discipline. Large transactions can work when the strategic fit is clear, the price is defensible and management can execute. Smaller purchases also fail when those conditions are absent.
“In the age of AI, valuation discounts create an opening. The acquirer’s operating capability determines the return.”
M&A: A Staircase to Heaven or Highway to Hell
