Why the Appirio acquisition is worth $500m for Wipro?

Wipro’s  acquisition of Appirio underlines the company’s aggressive expansion strategy in the new technology space as traditional revenue streams fail to deliver.

IT services major, Wipro, is set to make its biggest acquisitions ever with its announcement to buy Appirio for an estimated $500m.  Appirio, a US based company, is known to be a highly valued Independent cloud services player that helps companies seamlessly integrate their cloud and on-premise applications.  It has a solid play in the Salesforce and Workday services markets and has the expertise in handling some complex deployments in new technology areas like cloud, mobility and social.

A report by global IT services research firm, HfS, marks this as “the boldest move yet by an India-headquartered service provider into the SaaS services market to date.”

Why this could be a great deal for Wipro ?

It is not hidden that IT services majors, including Wipro, are struggling to come back to double digit growth, as it was the case till a few years back.  Technology changes are happening very fast and enterprise customers are demanding innovative solutions in new technology areas like cloud and mobility. The next phase of growth is going to come from these new streams, hence making it crucial for these companies to add on to their expertise.

“The deal was much needed for Wipro at a time when its legacy business segments are facing serious challenges due to faster growing industry trends of automation, cloud, digital and analytics. Almost all the industry growth is now driven by these newer technology areas. Wipro needed to move fast to grab this share of market to achieve its target of becoming a $15bn company by 2020. Appirio has big names in its client list (such as Facebook, Coca-Cola, eBay) and this acquisition will increase Wipro’s cross-sell opportunities in coming years,” says Biswajit Banerjee,  Senior Analyst, PAC - A CXP Group Company.

The great thing about this acquisition for Wipro is that it will have a much stronger play in the SaaS services market compared to competitors like  TCS, Infosys or Cognizant. Analysts suggest that the move is likely to threaten competitors a bit and to compete effectively in the space these players will have to move quickly.

“In our view, Wipro is stepping up to the plate right where the future growth lies, by adding significant capabilities around Salesforce, Workday and ServiceNow platforms, in addition to bolstering its digital and mobility capabilities in the retail and media spaces.,” states the HFS report.