US IT services provider Cognizant’s recent acquisition of Servian’s entire workforce shows just how important Australian and New Zealand businesses are for the expansion plans of global services companies.
Earlier in January, Cognizant snapped up the Sydney-headquartered data analytics consultancy firm for an undisclosed amount — including its workforce of over 500 across Australia and New Zealand — and claimed that the buy was part of its strategy to increase its expertise of data and artificial intelligence (AI), digital engineering, cloud and internet of things (IoT) worldwide.
According to IDC vice president and Asia/Pacific Software and Services Research Group member Linus Lai, this purchase represents something greater than Cognizant’s own aspirations.
Lai claimed that services companies based in Australia and New Zealand have been a target for acquisitions over the last few years.
“It has been quite a good place for global services companies who are looking to expand their footprint, particularly in A/NZ, to start with acquisitions of this nature,” he said.
“Since most of the medium to large SIs [systems integrators] have been snapped up already, the global SIs don't really need to acquire similar capabilities that they already have, but they do need to look for specialist types of capabilities with a good client base in this market.
“That helps them to break into the digital experience, design, cloud transformation, data and AI space that take some time, even if they use their own global capabilities.”
Lai pointed to Deloitte as an example, which he claimed has made roughly 40 acquisitions in the region over the last five years. Just a few of these in just the last year include Ekulus, Bistech and Zimbani. In addition, there is also the acquisition of Presence of IT in October 2019, which was considered to be its largest completed consulting transaction in the Australian market at the time.
Additionally, the firm’s vice president of its Global Services Markets and Trends research team, Gard Little, also said the acquisition shows how, on a global scale, slower spending growth for IT services typically raises demand for inorganic growth.
"This is true for large and small firms alike. Last quarter, I predicted that two of the top 20 worldwide IT services firms would merge in 2021 because of this trend, and the friendly offer by Atos for DXC supports this," he said.
That offer, which was made in early January, is, according to analyst firm Technology Business Research, likely to expand Atos' global service capabilities, expand its team of security professionals by 60 per cent, and take on its digital security services business.
Aside from viewing the A/NZ region as a stepping stone for expansion, the IT services industry also has its sights on digital marketing-related technology acquisitions. To Lai, this is indicative of acquisitions shifting towards focusing on the execution of digital strategies, and not just on the front office, customer experience or digital marketing.
This, of course, comes as the world at large is cutting back on physicality as a means of mitigating the coronavirus pandemic.
“Particularly in COVID, everything is going contactless, everything's going extremely digital. We are accelerating lots of years of transformation as quickly as possible,” Lai said.
“The capabilities to execute on a transformation, particularly in AI [artificial intelligence], in machine learning, in data and in security as well; we'll need a set of skills that enterprises are really want to look for, and they don't necessarily come from a lot of the larger global SIs necessarily, unless you unless you're in a tier one organisation in Australia.”
Within the channel market at large, a multitude of mergers and acquisitions have taken place during the first month of the new year, and this isn't expected to slow down any time soon.
This is according to Tech Research Asia analyst Mark Iles, who previously told ARN that he expects the rate of acquisitions and mergers to continue.
“Money is cheap if you can access it and there is a lot of private equity interest in IT at the moment creating competition with strategic buyers and we don’t see that changing,” Iles said at the time.