Wipro's Capco deal: A good target but the devil lies in the execution

Is CEO Thierry Delaporte's attempt to bolster Wipro's presence in the BFSI space by acquiring Capco for $1.45 billion a step taken too soon?

From the beginning of 2021 Wipro has moved on to a new organisational structure. Analyst tracking the company are now wondering if CEO Thierry Delaporte’s attempt to bolster Wipro’s presence in the BFSI space by acquiring Capco for $1.45 billion is a step taken too early.

Though many agree that Capco as a target may be good, but Wipro, which has been the most aggressive player in acquiring firms compared to its Indian players, does not have much to show in terms of performance as it continues to lag peers.

Girish Pai, head of research, Nirmal Bang says in his report that the key to this acquisition will be execution. “After the Capco acquisition, Wipro’s BFSI practice will be just one third the size of Accenture’s and TCS’ (including its platforms business). The key will lie in execution and value extraction. Wipro’s track-record on that score from acquisitions over the last two decades has been less than average. Despite doing the most M&As among India heritage IT players, Wipro has not been able to record industry-matching growth in each of the last 10 years, and has therefore slipped in revenue ranking within the industry,” he said in his report.

Before Capco, the biggest acquisition by Wipro was of Infocrossing in 2007. Then too the company had sounded bullish about the acquisition and how it will be able to get a bigger share of the infrastructure management services (IMS) space, but HCL Technologies went ahead of Wipro in this segment in FY14.

Industry experts also wondered if the timing was correct for the acquisition. The structural restructuring and execution under the CEO Thierry Delaporte has just begun, the company has seen some old timers leave and new have joined, and amdst all this the company will not have to work on its integration with the new company.

“Having a consulting focus to build business is always better as it allows one to create down stream opportunities. But my only concern will be integration and execution. With so much happening in the company, I hope Thierry is not moving too fast,” said Pareekh Jain, founder and lead analyst, EIIRTrend.

Most of the analyst are calling Delaporte’s acquisition as a radical change. He has demonstrated by restructuring the company last year and getting the structure ready for execution from this year, he has simplified the business and added new leaders in the European and the US regions. “This acquisition is another step in that direction – a right direction we believe. We only remain concerned about two things: one, growth/margin profile of Capco, both of which appear to be weak, and two, successful integration of the large complex business. Prior to this, HCL Tech and

TechM have made similar bold moves in the M&A space (see table inside) –with mixed outcomes. We would hate if Capco acquisition by Wipro, turns out to be similar to what LCC turned out to be for TechM,” said a note by Phillip Capital.

For Thierry Delaporte, the chief executive officer of Wipro, this acquisition fits into the first of the five themed strategy that started to take effect from January 1, 2021. The first strategy is to accelerate growth- focus and scale in certain markets and sectors to achieve market leadership. While he is certainly not falling short on effort, but the details will be in execution.