New Delhi [India], August 17 (ANI): Nearly half of the mergers and acquisitions undertaken by India's leading IT companies over the past two financial years were driven by the need to acquire artificial intelligence and allied capabilities, as companies increasingly turn to acquisitions to accelerate their transition towards AI-led services, according to Crisil Ratings.
"AI has moved from experimentation to a boardroom priority, and inorganic investments are now being used to compress capability-building cycles," Crisil Ratings said.
The trend marks a shift in acquisition strategy for Indian IT companies. Of around 90 M&A deals assessed by Crisil Ratings, acquisitions between fiscals 2019 and 2024 were primarily aimed at strengthening digital capabilities such as cloud computing, process automation and analytics, or expanding geographical reach.
However, over the past two fiscals, AI has emerged as the key theme, along with capabilities such as data engineering, digital engineering, engineering research and development and enterprise platforms.
"AI has become a strategic acquisition trigger for Indian IT companies. The objective is not merely to add scale, but also to enhance relevance through specialist talent, domain-ready platforms, marquee clients and sharper go-to-market capabilities," said Aditya Jhaver, Director, Crisil Ratings.
"In a rapidly evolving technology cycle, acquisitions can shorten capability build-out timelines from years to months and help companies remain competitive as enterprise AI adoption gathers pace," Jhaver added.
The acquisition push has also been largely overseas. More than 70 per cent of the targets acquired over the past two fiscals were based in the United States and Europe, where Indian IT companies are seeking deeper pools of AI talent, proprietary platforms and sector-specific intellectual property.
Among the key AI-related transactions listed by Crisil Ratings were Coforge's USD 2.35 billion acquisition of Encora, TCS' USD 700 million acquisition of Coastal Cloud, Infosys' USD 465 million acquisition of Optimum Healthcare IT and Wipro's USD 375 million acquisition of Harman DTS.
Despite the rise in acquisitions, Crisil Ratings said the transactions have so far not materially weakened the balance sheets of acquiring companies, as most have been funded through internal accruals, cash reserves or share swaps with limited reliance on debt.
"So far, deal discipline has played a vital role in preventing credit profile slippages. Most acquisitions have been modest relative to the acquirers' net worth and funded largely without material debt," said Joanne Gonsalves, Associate Director, Crisil Ratings.
She added that AI-led M&A should strengthen companies' business positioning without materially impairing their credit profiles, provided they integrate acquired assets effectively and avoid stretching their balance sheets.
Crisil Ratings said the eventual impact of these acquisitions will depend on successful integration, cross-selling, talent retention and the timely monetisation of acquired AI capabilities. (ANI)
AI capabilities drive nearly half of Indian IT sector M&A deals in past two fiscals: Crisil
